Global fintech and funding innovation ecosystem

Quebec needs new innovation strategies to level the playing field for domestic tech

The Globe and Mail | | Sep 19, 2018

supporting domestic innovation sector - Quebec needs new innovation strategies to level the playing field for domestic techThere are more than 250,000 technology workers employed across all industries in Quebec. In Montreal and Quebec City, the tech sector is the third largest private-sector employer. Around the world, Quebec is known for being a hub of research and innovation, especially in fields of artificial intelligence and video-game technologies.

Despite the sizable contribution domestic technology companies make toward Quebec’s economic prosperity, government policies regarding innovation have featured incentivizing for the expansion of foreign branch plants in Quebec over the growth and success of homegrown companies locally and around the world. This has had a negative effect on Quebec’s ability to scale domestic companies into global giants.

Business incentives that governments have offered to foreign companies to expand their operations in Canada’s major tech cities, such as salary subsidies or Quebec’s multimedia tax credit, were initially designed to stimulate our economy. The most common rationale behind these incentives pertains to the job growth promised by foreign tech companies. Yet the evidence suggests otherwise. A recent study by the Munk School of Global Affairs finds that politicians make “jobs” announcements that often don’t materialize as advertised. In addition, foreign branch plants exacerbate existing labour market shortages by creating a government-funded competition for wages and make use of publicly funded intellectual property (IP) created at Canadian universities.

Canada is already facing a high-skills talent creation and retention problem, particularly in the digital industries. A recent study from the Information and Communications Technology Council states there will be nearly 220,000 unfilled tech jobs across Canada by 2020. In Quebec’s tech sector, we have been at full employment for a decade.

Despite this, government officials in Quebec and across Canada have been investing considerable amounts of time, energy and political capital into attracting multinational technology companies to Canada without any studies on the effect they have on the domestic tech ecosystem and our economy as a whole.

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More concerning, these large companies pay little to no taxes to the governments underpinning their growth, as the profits they earn are realized at their foreign headquarters – not in Quebec. Local wealth creation is important because the taxes domestic companies pay on their revenues are reinvested by governments into the important social and infrastructure programs all businesses use and Quebeckers care about. The same goes for the capital gains reinvested by local investors and funds such as Caisse de dépot et placement du Québec, Fonds de solidarité FTQ and others.

Economic evidence shows that domestic high-growth companies provide the critical public and private wealth Quebec needs to remain an economically competitive and prosperous society. All innovation experts agree that companies that scale from $100-million to a $1-billion and beyond provide the most return to their domestic economies. We see this happening in countries such as the United States, Israel, Germany, South Korea and even China. It’s time for Quebec to have an economic strategy aimed at seeing more of its successful domestic companies compete and scale up globally.

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