Blaming government not always the solution to industry’s financing woes

From a risk management perspective, Canadians would never mount a number like Robin Williams' Oscar night, high kicking, cheeky rendition of "Blame Canada". It would be too risky, not to mention impolite to point the finger at another country. It is more our style no matter what the problem to build consensus and then to blame government. According to reports from the recent forum assembled by the Business Council on National issues, blame government is what business leaders did when they met in the Royal York Hotel ballroom to discuss how to help Canada compete in the fast moving Internet economy. Collectively they blamed high taxes for the failure to create opportunity critical for business growth and then they blamed the brain drain. To be fair, governments at all levels have made considerable investments in both the Internet and its workers. When applied to the country's multimedia sector, however, this effort to is not having the expected outcome. Instead of encouraging development and the calculated risk taking behaviour of the successful entrepreneur, the strategy seems to be having the opposite effect. According to a recent survey, two thirds of multimedia companies, 24 per cent more than in 1995, are relying on government for their business plans (CNM, Apr. 6/00). In fact, they see government as their number one source of financing during the next 12 months. No risky business here. Venture capital is way down the list behind banks and personal connections. When asked to calculate the ideal level of government involvement these cutting edge companies want it both ways with 73 per cent indicating a preference for tax credits just slightly more than the 64 per cent asking for more government grants. If they get a break on taxes, it is hard to imagine where the money would come from for the grants. On first glance, the survey shows these are mostly privately held profitable small and mid sized companies selling products to the U.S. as well as Canada. But a deeper look at the data shows that three quarters of them have under $1 million in revenue. It is understandable that these companies, 60 per cent of which will seek financing in the next year, would prefer the safest source - government. The concept of shared risk/shared revenue does not fit when revenue is scarce and there is not much to share. The real opportunity is for big business leaders whose profit margins leave room for risk and revenue. Investing in young growing companies in the multimedia sector may go a long way to stopping the brain drain. If there is a role for government it may be as intermediary to identify strategic partners and create events to put them together. For the record, South Park the animated series which launched the "Blame Canada" song, is careful to note on its website that the Oscar night number didn't appear to offend Canada. While South Park is only a cartoon, the subtext is cultural economic. Keeping government subsidies low is one way to ensure Canada does not offend South Park. Julia Walden is President of Borden Street Inc, a Toronto company specializing in content development and business strategies for new media technologies.

Blaming government not always the solution to industry’s financing woes

Broadcast | April 20, 2000

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