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Public Policy for the Digital Age

by Randall on September 2, 2008 · 6 comments

Posted in: Public Policy,Society,Web,Wireless

With the imminent federal election call in Canada, it seems timely to start a discussion on public policy principles that our governments (federal and provincial) should be considering. From the context of the information technology industry (web, mobile, digital media, etc.), why is this important?

Firstly, as more and more traditional manufacturing jobs migrate to the Pearl River Delta, the knowledge-based industries, given the right macroeconomic environment, could well be one of our best job growth options. By “macroeconomic environment”, we are referring to the complex web of legislation providing fair regulation, securities legislation and tax code that better encourages the growth of a globally competitive IT industry.

Secondly, it should be noted that the Silicon Valley, where most of the IT industry originated, has not historically been that engaged with government, policy or lobbying. In fact, many in the technology industry have proudly worn the badge of libertarianism, erroneously believing they represent a future that has transcended the need for government intervention or regulation. In fact, all the time, these people may have been simply living in a sheltered world created, ironically and in large measure, by big government and the military industrial complex. The Defense Advanced Research Projects Agency (DARPA) of the US Department of Defense, funded massive research during the 1960’s and 1970’s that led directly to the creation of the modern internet. As it happens, the very openness (if not the counter-cultural flavour) of today’s web, arose directly from creating a redundant fabric that would potentially survive nuclear attack.

Thirdly, and not to overgeneralize, many elected officials lack proficiency in technology and the future of the digital and wireless economy to make good policy decisions. Rather than being a criticism, it’s just a fact of life. In that environment, it behooves technology industry leaders to work to inform our government representatives, and the civil service, on important matters.

A key complicating factor is that the political process has a tendency to pander to public opinion rather than cold harsh economic realities. Spending tens or even hundreds of millions trying to subsidize dying industries is like trying to extend the life of the proverbial buggy whip. Spending money on programs to lessen the impact of social and economic change is quite another story. But, even then, governments generally don’t excel at picking winners and losers. Generally, it is better to simply level the playing field and stand back to let the market perform.

Accordingly, over the next few weeks, we’ll choose a few topics that have direct relevance to our digital future and, quite likely, our overall prosperity in the coming decades:

  • “Why Bill C-61 is a Bad Idea for Canada’s Digital Economy”,
  • “Taxing Talent in Startups”,
  • “Startup Investment Discouraged by Tax Laws” and
  • “The Sorry State of Mobile Regulation in Canada

Stay tuned. We encourage your input on any issue we discuss. If you feel there are other key issues to the future of our knowledge based economy, then, by all means, include that in comments as well.

About Randall

Randall Howard is a serial entrepreneur and long term technologist with a passion for social innovation.

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  • jimmurphy

    Looking forward to these follow on posts, Randall. Especially “Startup Investment Discouraged by Tax Laws” I’ve been trying to understand what could possible to help US based investors participate in Canadian startups.

    I’m truly amazed at the lack of knowledge, ability and tools to make US investments happen.

  • Jim,
    Sure thing.
    For this series, I plan to stick to investment-negative tax policies. However, I plan to discuss the venture and startup investment climate in a few other posts. It’s a big topic worthy of much more disucssion and awareness.

  • In a United Kingdom context, I’d have considered discussing “Contracts not Cashbacks”. From time to time various governments here have attempted to “do something” to assist technology businesses, but this has typically been in the form of “Grants”, which typically aren’t really grants but effectively the return of PAYE, employer’s National Insurance payments and a given level of other overheads paid out by a company for an agreed project. When any level of Government attempts to procure some software, however, the work tends to go to the usual suspects, often spin-offs of big accountancy firms, and UK branches of large US consultancy and services companies. Typically this results in many more spondoolicks being spent than originally budgeted, sometimes without usable deliverables. In any case, no small company, or even a consortium of them, is ever likely to have the chance to get some of this work. It’s made worse in the UK by the tendency to centralise everything, so there is rarely any procurement “small enough” for a small company to satisfy the financial requirements (because they are small).

    Most businesses I know would rather prefer to bid for work and do it, rather than mess about with subsidy programmes (assuming they could qualify). In a more decentralised federal system such as Canada, one might hope that there would be more opportunity for small businesses to compete, supply, and thus grow. But does that actually happen? If not, should it, and if so, how could it be done?

  • jimmurphy

    @forsyth – You made me look up “spondoolicks” but I’m better for it. 😉

    I’d say Canada has very similar centralization and “strings attached” government subsidy programs. Some, like our SR&ED (http://www.cra-arc.gc.ca/sred/) are fairly aggressive in the potential $’s available though there is significant reporting complexity and from what I gather the cash arrives 1-2 years out of phase with the work.

    From my perspective – software startups – I see the small volume of smart early stage venture investors (there are some but not enough) as the biggest issue. Ironically there is plenty of money seeking deals close to Canadian startup centers. Ont he west coast its Vancouver and Seattle/San Franciso/LA and ont he East coast its Boston/NYC and Toronto/Montreal. Bost of these clusters has significant $$ chasing too few deals domestically but there is a disproportionately small amount of US investment reaching over the Canadian boarder. Streamlining this Canadian legislation would have a significant and positive effect on local Canadian economy.

    Here is just one report outlining some of the challenges and does a pretty good job of describing the myopic public policy rampant in Ontario with respect to venture back entrepreneurs: http://www.mondaq.com/article.asp?articleid=58502

    Things that confuse me:

    1. Why a $90 million fund guarantee on the part of the provincial govt is considered significant. This is a fraction of a single fund at a single US VC firm. Clearly more is needed and where will it come from?

    2. Why tax reporting burdens on US VCs and their limited partners that choose to invest in Canada haven’t been made more practical. (Section 116)

    3. Why other mechanisms aren’t common (other than exchangeable share transactions) to promote a simpler and less risky option. There could be a step change in the level of US investment given a more straightforward vehicle.

  • Jim and Charles,
    Your insights are valuable, particularly as you are looking at this from a transnational perspective.

    I’m definitely planning to blog more about investment and taxation, especially complicated by cross border issues. And, hopefully you will contribute to those discussions as well.


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