A Welcome Mat Isn’t Enough: Keeping Canada’s Best and Brightest

By Laurent Carbonneau
CCI Vice President of Policy and Advocacy

Last week, the federal government announced that Canada’s leading research universities had landed 64 world-leading professors, bankrolled by a new research chairs program to attract top global talent. Just about 50 of the 64 are coming right from American universities. Some are Canadian by birth or upbringing, but many are not.

These researchers are heavy hitters, and this is undoubtedly a good thing for Canada. The U.S. government is making this possible by cutting research funding and degrading university campuses such that they seem like less attractive, sure bets than they would have a few years ago. Their self-inflicted loss is our gain.

Canada should take this good-news story and take the lesson: we should be doing a lot more to bring and keep the world’s best and brightest here. As the federal government prepares its November budget, they should make a big play to keep and repatriate entrepreneurial Canadians. And while there are lots of potential ways to do that, an easy way to start is in the tax system, by raising the upside for investors and innovators who scale in Canada.

Our government has correctly acted on the theory that exceptional talents can be force multipliers. As Minister Joly said, “For a long time, we’ve been dealing with the impacts of brain drain. We’re now in brain gain mode.”

That’s great energy to bring into the fall, because there are a lot of brains to gain, even if we’re just talking about Canadians. The over 800,000 Canadians in the United States are sometimes called Canada’s “missing province.” That is roughly a New Brunswick’s worth of people, and somewhere in between the population of Winnipeg and the population of Edmonton. Tens of thousands leave every year, and there is reason to think innovators and technical leaders are overrepresented among them.

A group as big and entrepreneurial as our missing province can make a real difference to economic outcomes. A recent Bank of Canada paper found that if you brought back Canadians living in the United States with their American incomes, you would increase per-capita GDP in Canada by 6% after accounting for some statistical adjustments. That’s about $5,400 for every adult, or $187 billion across the economy.

But of course, the reason that many Canadians who work in the United States stay there is that they can’t earn their American incomes in Canada. The authors suggest that the fact that we lose so many exceptional Canadians to emigration is part of what’s keeping Canada in a small-firm, low-innovation equilibrium.

So, the question becomes: how do we keep the most promising Canadians here – as we’ve said before, patriotic sacrifice isn’t an answer you can build around forever – and ideally, bring home Canadians who have spent time working for some of the most dynamic companies and clusters in the world back home with their expertise.

The reality right now is that the global economy is centred on superstar firms that generate incredible upside. Canada does not have enough of those firms. If we want more, an important thing to do is to make the return on investment in innovative enterprises more attractive in Canada relative to the United States than is currently the case.

In its first budget, the Carney government amalgamated and extended investment tax credits to create the ‘productivity super-deduction’ to try to induce investment. But another important finding in the Bank of Canada paper I mentioned above is that a capital goods investment drought isn’t really Canada’s problem. It doesn’t explain the gap in productivity and per-capita GDP. The gap is overwhelmingly concentrated among high-income earners, who are themselves overwhelmingly working for leading-edge firms. More deductions on investments in capital goods like machinery won’t generate the kinds of bets on risky, high-upside companies that our economy actually needs.

If the government wants to send a strong signal, it should match or exceed the American qualified small business stock (QSBS) exemption for investments into Canadian companies in innovative sectors. When it was introduced in the US under the Obama administration, this policy, which cut capital gains taxes on equity in innovative startups, had a rapid impact on both startup founding (a 10% increase) and on startup patenting (a 23% increase).

Canada has a declining rate of entrepreneurship, low rates of business R&D, an economy dominated by SMEs, and long-standing productivity challenges. We’ve seen all these problems get worse over the last generation.

If we want to reverse this trend, knowing what we know – that large, innovative companies are central to national economic outcomes, that we struggle to retain talented Canadians and that can stand to gain so much from bringing home those who have left – we should invest in allowing entrepreneurs and innovators to realize more upside for staying in Canada. We need to create a virtuous cycle of reinvestment, excellence in running global companies, and research and innovation to solve big challenges.

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Laurent Carbonneau is CCI's Vice President of Policy and Advocacy. He can be reached at lcarbonneau@canadianinnovators.org. Mooseworks is the Council of Canadian Innovators' innovation policy newsletter. To get posts like this delivered to your inbox, sign up for CCI's newsletter here .