Thank you, Mr. Chair.
Good morning, and thank you very much to the committee for the invitation to appear on behalf of the Macdonald-Laurier Institute.
For those of you who aren't familiar with us, we're a public policy think tank based in Ottawa. I think we're the only full-service public policy think tank based in the nation's capital.
We were of course very pleased to see this committee seized with issues of such great economic importance. It's a very broad topic, so it's pick and choose what you want to talk about in your five minutes. I'm going to provide a bit of a perspective on SMEs for the committee to chew on that some might find a little bit unorthodox, but given that part of the study involves productivity, I think it's an important consideration.
We can probably start with the fact that this study focuses specifically on SMEs rather than businesses generally. We have to ask the question: Why is this? I think we all know the answer, and as practising politicians you will be acutely aware that small and medium-sized businesses carry a special and positive reputational weight in the world of politics. They are personal and they are local. The contrast between the relatable owner of a small business who lives in your community—and no doubt many of you know many of these individuals personally—and what we might call distant, faceless corporations could not be more stark. The latter half of this equation, I would suggest, is very problematic when shaping policy. If small and medium-sized businesses have a halo upon them, larger businesses bear the burden of being the villains in this theatre.
This leads, unfortunately, to policies that can tilt the playing field toward the little guy against the big guy. Now, why is this a problem? I would suggest it's a problem because most of the evidence suggests that if we're actually concerned about things like productivity, higher wages, equal gender opportunity or even unionization rates, the reality is larger businesses severely outperform smaller businesses by a considerable margin.
Just to take one example, wages, there was a recent study that shows that large firms, which are defined as firms with more than 500 employees, tend to pay workers on average 44% more than small firms. Productivity, of course, is another issue of importance to this study. In many industries larger businesses can leverage scale, research and development, network effects and better global competition by virtue of their size. That is to say, there are some significant advantages to larger businesses that small and medium-sized businesses simply do not have.
The other challenge with small businesses that's difficult to accept is the reality that the vast majority of them either do not succeed beyond a few years or grow to a very limited size. Now, there's of course nothing wrong with this. Not every business can succeed and not all of them need to become Goliaths; but it does illustrate the difficulty of putting an overemphasis on SMEs if we're looking to them to be a major driver of productivity growth.
Another issue that this study focuses on is competition. I think John Pecman highlighted a lot of this with his remarks, and I agree with much of what he said. I think anti-competitive conduct is rightly something that policy-makers need to be seized with. I think there's a consensus across the political spectrum that anti-competitive conduct and behaviour is bad for Canadians, but note that this is actually a size-neutral statement. It is not that being big makes you anti-competitive; it is the behaviour. Both large and small businesses can act in anti-competitive ways. I think some competition policy needs to remain focused on behaviour rather than on size specifically, and in fact I think this is a useful way to frame policy-making around business generally. Rather than large versus small, I think a more useful framing might actually be old versus new, since there's quite a lot of evidence that newer businesses tend to be more dynamic, more growth-oriented and more innovative than older ones, so when shaping policy, this might be a useful way to look at it.
I know I have a short amount of time. The last thing I'll mention is a study that Macdonald-Laurier participated in, a ranking called the subnational innovation competitiveness index, which came out in June of this year. This study ranked all 92 jurisdictions in Canada, the United States and Mexico on the innovativeness of their economies. There's lots of good news in this for Canada. We rank very highly in terms of our skilled workforce and our immigration system. We have a highly educated population and good linguistic ability.
Some of the downsides, though, that probably deserve some focus from policy-makers include the number of patents. Patents are much lower in number in Canadian jurisdictions than in the United States. Gross value added per worker in manufacturing is lower here. Perhaps most alarming is the economy-wide business birth rate. Entrepreneurship has a weak pulse in Canada, according to this survey, so it's something we should certainly be concerned with.
Thank you.