Business support experts react to contentious policy paper out of the Munk School

The Ontario government spends approximately $5 billion a year on business support programs, many of which don’t stand up to cost-benefit analysis. So say Jamison Steeve and Sean Speer in a new paper published by Ontario 360, a public policy research group housed at the University of Toronto’s Munk School of Global Affairs and Public Policy. The authors argue that Ontario’s business support programs aren’t doing what they’re supposed to, and may even be counterproductive.

But the paper has prompted criticism from several experts in the field, who reject the authors' assertion of a consensus among researchers that business support programs tend to be ineffective and can't generally withstand cost-benefit analysis. RE$EARCH MONEY reached out to the authors for comment through Ontario360 but did not receive a response.  

"Our evidence [shows that] business support programs… do have a positive impact. We show it, day in and day out," said Brian Barge, founder and CEO of The Evidence Network, a firm that performs impact assessments for innovation intermediaries and has completed 100 evaluations of business support programs in 12 countries. 

Speaking with RE$EARCH MONEY, Barge pointed out that the authors of the Ontario360 paper conflate the concepts of "business incentives" and "business support programs," to misleading effect. For example, the authors write that "the preponderance of research generally finds that this spending does not typically produce outcomes that can withstand cost-benefit scrutiny." The reference they provide — an OpEd in The Hill titled "Think corporate welfare isn't a waste? Read these studies" — is about business incentives, not business support programs. 

Business support programs — incubators, accelerators, research parks, mentorship programs and similar initiatives — ought not to be confused with incentives, he says. Incentives are direct or indirect cash infusions to individual companies or sectors, designed to attract or secure foreign investment and jobs. While incentives may be regarded as a subset of business support programs, the two terms refer to distinctly different activities. Consequently, criticisms of incentives don't transfer directly to support programs. 

"Everybody knows that business incentives don't work," says Margaret Dalziel, an associate professor with the Conrad School of Entrepreneurship and Business and vice president of research at The Evidence Network, speaking with RE$EARCH MONEY. 

"Business growth and commercialization of ideas are organic processes that need to unfold according to their own characteristics: the talent of the people involved, the energy that they apply, the demand in the market. Business supports can only enhance the process a bit, and it takes time," says Dalziel. "This is why politicians are motivated to bypass the whole organic process and say, 'Okay, we'll just bring in 1000 jobs.' But it's cynical. We just compete against each other to do that." 

A problem of measurement

In several instances, the authors of the Ontario360 paper buttress their critique of business supports/incentives with misleading citations, says Barge. For example, the authors cite the 2012 report by Don Drummond on Ontario's public finances, which they characterize as highlighting "the ineffectiveness of the province's business support programs."

"That is just not what Drummond wrote," says Barge. Drummond cited the lack of evidence for business support programs, not their ineffectiveness — an essential distinction. On page 44 of the report, Drummond writes: "As data on outcomes are often poor and inconsistent, it is unclear whether the programs are achieving any economic benefits for Ontario." In other words, business support programs need more assessment. 

The authors repeat this mistake when they include a partial quotation from a 2015 report by the auditor general of Ontario. Speer and Steeve only include the latter half of a key statement: ".... the Ministry is unable to conclude on whether its economic development and employment-support programs are effective in ensuring sustainable benefits for Ontario." They omit the preceding phrase, however: "As a result of the above weaknesses in its monitoring and reporting processes..."; that is, the inability to reach a conclusion stems from lack of assessment, not the results of evidence-gathering processes. 

Following the publication of the Drummond Report, the province's finance ministry commissioned an expert panel in 2014, chaired by Dalziel. This report stated that data about business support programs are sparse due to insufficient evaluation of outcomes. But Speer and Steeve never mention this report. "If these authors had to admit that evaluations hadn't been done, they could never have made their conclusion about ineffectiveness," says Barge. 

Charles Plant, a senior fellow at the Impact Centre at the University of Toronto, made a similar observation in an email to RE$EARCH MONEY: "The paper asks questions about support programs without answering those questions. There isn't any data about what the support programs are, what they do, and how they are measured. This is just a recitation of other reports that themselves don't fully address the problems listed."

Something is wrong, but lowering corporate taxes isn't the solution

Speer and Steeve are right to identify a problem and seek solutions, says Graeme Moffat, a senior fellow in public policy at the Munk School as well as chief scientist and vice president of regulatory affairs with Interaxon, a Toronto-based consumer health tech company. "Whatever we've been doing has been producing a systemic secular drop in business and enterprise R&D for [around] twenty years," he said in an interview with RE$EARCH MONEY. "I don't think there's a question that what we're doing is not working… [But] is there enough political will to really take a shot at something different?"

In their paper, Speer and Steeve point to the 22-per cent productivity gap with the United States as an indicator of Canada's economic shortcomings. To address this, they encourage Ontario to continue adopting a "pro-competitiveness framework," which includes regulatory reform and reductions to the province's corporate tax rate. 

Moffat is skeptical about the utility of lowering taxes. "I don't think that tax levers are going to solve the problem. High-growth, high-innovation companies don't think too much about taxes because they're too busy re-investing," he observes. 

David Wolfe, professor of political science at the University of Toronto and co-director of the Innovation Policy Lab at the Munk School, also disagrees with this approach: "Tax reductions are an incredibly blunt instrument to use," he said in a conversation with RE$EARCH MONEY. "To say deregulate and cut taxes and that will be the panacea to everything: we've had forty years of that since Mulroney was elected. Tell me if you think the knowledge-based economy in Canada is doing better, relative to our main competitors, than it was 40 years ago."

The courage to do hard things

"If we could lower corporate taxes and close the productivity gap, life would be sweet," says Dalziel. "It'd be nice if those kinds of mechanisms achieved results. But what we need is the courage to do hard things." Specifically, the hard things that well-designed business support programs seek to do. 

"Firms need learning opportunities," says Dalziel. "This is what the programs do: they create fora for learning, by having networking, supported partnerships with university researchers, supporting business mission trips… All these efforts are about helping the firms do better."

Business support programs aren't immune from criticism, but to successfully differentiate the good from the bad, that criticism needs better footing. "Some programs do work better than others, but if you want to make them work better, you need ongoing evaluation, you need refinement through an iterative process," says Wolfe. "But you don't need to come out and make wholesale statements that they don't work."

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