Montreal, September 19, 2017 – Canada is fertile ground for entrepreneurship, but many opportunities nonetheless remain unseized due to ill-advised public policies, shows a Research Paper published today by the MEI.
In the World Bank’s 2017 Doing Business ranking, for example, which measures the quality and efficiency of the regulatory regime, Canada is ranked 22nd overall out of 190 countries, and 2nd in terms of starting a business. However, it is 46th in terms of trading across borders, and 112th for enforcing contracts.
Quebec fares poorly when compared to the other provinces. “The most recent statistics show that it consistently has the lowest entry rate of business, while Alberta consistently has one of the highest,” explains Mathieu Bédard, Economist at the MEI and co-author of the publication.
This Paper presents the perspective of the Austrian School of Economics on entrepreneurship. This original approach places the entrepreneur at the centre of economic activity as the agent of change, as opposed to the neoclassical approach taught in our universities, in which the entrepreneur’s role has been largely erased.
“According to this school of thought, interventionist policies undermine entrepreneurship, and it would be better to eliminate harmful policies than to create new ones. That’s what entrepreneurs need. Unfortunately, politicians often do the opposite,” explains renowned George Mason University Professor Peter Boettke, one of the main contemporary figures of the Austrian School and co-author of this publication.
High personal income taxes are an example of a harmful policy. In Quebec, the top combined income tax rate (federal and provincial) is 53.3%. Nova Scotia is first among provinces with a combined rate of 54%. In the United States, not only are marginal rates lower, but they are applied starting at much higher income levels.
“With high taxes, entrepreneurs find it more difficult to fund their businesses, not only because they themselves accumulate less wealth, but also because it is generally harder to convince potential investors to invest,” says Mr. Bédard. “We can therefore expect there to be less entrepreneurship.”
The capital gains tax, the lack of flexibility when it comes to hiring and firing, and corporate subsidies are also policies that slow down entrepreneurship in Canada. Legal monopolies, like those for alcohol, gambling, or electricity, for example, also make the economy less dynamic since they are not subjected to competition and have few incentives to innovate. Occupational licensing and interprovincial trade barriers also have the effect of discouraging entrepreneurship.
“Politicians, even if they have good intentions, hurt entrepreneurs when they choose to intervene in the market with various programs and regulations. A more promising approach would be to review policies that discourage entrepreneurship, and to let entrepreneurs succeed or fail on their own merits. This is how an economy creates wealth, that is, by making sure that entrepreneurs and investors concentrate their efforts on productive activities that add value by responding to the true needs of consumers,” concludes Michel Kelly-Gagnon, President and CEO of the MEI.
The Research Paper entitled How to Foster Entrepreneurship in Canada: The Teachings of the Austrian School of Economics was prepared by Mathieu Bédard, Economist at the MEI, and Peter J. Boettke, Professor of Economics and Philosophy at George Mason University. This publication is available on our website.
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The Montreal Economic Institute is an independent, non-partisan, not-for-profit research and educational organization. Through its studies and its conferences, the MEI stimulates debate on public policies in Quebec and across Canada by proposing wealth-creating reforms based on market mechanisms.
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