Vancouver’s digital supercluster needs policies that protect its human capital

Digital industries in Canada operate in ways that are often at odds with other economic activities, owing to a fundamental difference: in the digital sector, the main input is human capital and the main output is intellectual property, whereas for most other Canadian industries the inputs are resources and the outputs are processed raw materials, manufactured goods and conventional services. Moreover, unlike resource and manufacturing industries, where location matters a great deal, software can be developed anywhere in the world, so Canada has no inherent advantage.

As part of the SSHRC-funded multipartner project, Creating Digital Opportunity, we at Simon Fraser University interviewed a number of entrepreneurs and innovators in the Vancouver digital industry cluster. We expected to find significant differences between the entertainment industry (games, animation and visual effects) and the remainder; instead, we found that they share common interests and fears.

The big problem is human capital. Plenty of skilled people entering the market, but too few are remaining in Vancouver.

CBRE, an American real estate broker has developed a series of indicators of digital clusters in fifty cities: forty-six in the US and four in Canada (Montreal, Ottawa, Toronto and Vancouver). The results are chilling.

While Canadian digital workers are as skilled as their US counterparts, they are paid considerably less. Housing costs in Toronto and Vancouver are exceeded in only a few US cities. For example, Vancouver scores as the fifth digital cluster in North America with the highest market labour quality, preceded by San Francisco, Seattle, Austin and Boston. At the same time, both Vancouver and Montreal have the lowest labour costs among all clusters. Overall the four Canadian cities rank as the lowest cost markets in the region. While this may be beneficial to entrepreneurs, it is discouraging to their major input — human capital. Human capital issues, not market access and global competition were the most mentioned in our interviews.

Conversations with practitioners at the working level revealed that the major issue, apart from salary levels and housing was the rise of the “gig economy.” Those working in the software sector are more likely than most highly skilled workers to be members of the “precariat,” working from contract to contract. This does not help them maintain a healthy family and social life, and thus erodes their productivity.

Apparently paradoxical is the fact that CBRE classifies Vancouver as the 6^th city with the highest “brain gain” across the fifty North American clusters, while Toronto scores first. However, this indicator only captures whether a city produces more tech talent supply than demand (i.e. brain drain), or if it creates more tech jobs than tech graduates (brain gain). Our interviewees refer to other forms of brain drain —  that of current practitioners moving south of the border in search of higher salaries. In theory, and without considering immigration policies, the high quality of the Vancouver-based human capital makes it relatively easy for practitioners to relocate wherever the compensation is better.

The new digital supercluster program has the possibility to generate new innovations in Canada, but what use will it be if the major input, the human capital, gives up and moves away? Already there is some evidence that the large industrial players in the program are using it as a recruiting tool, to bring in new people, assess them, and if they are really good, move them elsewhere. Staying to finish a project may become the consolation prize.

Research shows that digital enterprises often emulate the mobility and flexibility of their workforces, rapidly changing from one location to another as circumstances change. Creative workers frequently choose first where they wish to live and then establish their workplaces. Liveability of a city thus becomes a major consideration for these people. What is needed then are coherent policies at all levels of government, not just the federal government. Housing policies, particularly in Vancouver and Toronto, have to be structured to retain the human capital within the cities, in order to provide the necessary density of expertise to maintain the digital industry clusters.

These policies fall to either the provincial or municipal governments: without a strong incentive to stay, particularly at lower salaries, Canadian software talent will move, and along with them, Canada’s innovative capacity in this field will disperse.  The federal government could, as part of its innovation policy activities, convene a discussion to start remedial action.  Without a clear policy structure, Canada will be condemned to be as before, “hewers of wood and drawers of water.”

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