Article content continued

Of nearly 1.2 million businesses in Canada, he notes, 98 per cent have fewer than 100 employees, three-quarters have fewer than 10, while more than half have four or less. “Most Canadian start-ups never amount to much,” he writes: only half are even in business five years later. A tiny fraction, perhaps two per cent, turn into high-growth firms, the so-called “gazelles.”

The rest stay small, too small to reap economies of scale or access new technologies but small enough to avoid competition. Not only are our small businesses less productive than larger firms — they’re less productive than their U.S. counterparts: “While American companies with fewer than 500 employees are 67 per cent as productive as those with more than 500 employees, in Canada smaller companies are only 47 per cent as productive as big ones.”

He quotes a study of Canadian small business by the Global Entrepreneurship Monitor: “only one-fifth aspire to provide 20 or more jobs five years down the road; two-thirds are not planning to have even six employees by then.” Their actual record on this front is even worse: a 1997 Department of Finance study found just one per cent of businesses grew from fewer than five employees to more than 20 employees over the period 1985 to 1992; only 12 per cent even had more than five.

Most go into business for the freedom and self-determination, rather than any dreams of empire

This certainly isn’t for lack of encouragement. It isn’t just the small business deduction. Small businesses are eligible for all sorts of other tax perqs, from the lifetime capital gains exemption to special exemptions from GST and payroll tax. Twenty years ago, the Mintz committee on business taxation, chaired by economist Jack Mintz, reported that Canadian small business had “one of the most favoured income tax regimes in the world relative to the general tax system.” Since then it has only grown more favourable. Some provinces barely tax them at all.