by Candice Malcolm
March 23, 2016
There was a lot of bad public policy in Tuesday’s federal budget, but one of the most harmful and misguided initiatives has flown largely under the radar.
That is, Prime Minister Justin Trudeau’s government will spend $800 million to fund “innovation clusters” in places like Waterloo, hoping to foster a Silicon Valley environment.
It’s easy to see why politicians want to replicate San Francisco’s southern suburbs, known as the Silicon Valley.
It’s a remarkable example of free market capitalism benefiting the world.
It’s a diverse and forward-looking community made up of creative entrepreneurs, brilliant engineers, and bold investors.
Bay Area tech companies employ millions of people worldwide and are worth over $3 trillion combined.
It’s also home to leading technology companies such as Apple, Google, Amazon, Facebook, and Uber, as well as more major investors on one street in Palo Alto than in all of Canada.
The problem with Trudeau’s policy, of course, is that governments all over the world have tried and failed to recreate Silicon Valley, wasting countless billions of taxpayer dollars in the process.
In England, there is Silicon Fen and the Silicon Roundabout. New York has Silicon Alley, Berlin has Silicon Allee, and Australia, Silicon Beach.
Canada is trying to build Silicon North and has been the country with, arguably, one of the biggest failures.
In 2000, the then Progressive Conservative government of Ontario promised to build an “innovation cluster” in Toronto through its MaRS initiative.
Now, 16 years later with the Liberals in charge for 13 and after spending nearly a billion dollars of public money, the project is little more than a nice building with a lot of empty space requiring more government bailouts.
Silicon Valley — the real one — is the most competitive economic environment in the world.
It attracts top talent, and produces top quality work.
When you add government subsidies to that equation, you inadvertently lower the bar and fund projects that probably shouldn’t be funded.
You add government red tape and endless forms to fill out, taking away from the focus of growing a business.
And you open the door to free-riders who show up whenever the government gives away “free money”.
These byproducts of government intervention clash with the environment in Silicon Valley.
If anything, it discourages smart entrepreneurs and scares away the best investors.
That’s not to say Silicon Valley has never received money from the government.
Funding to U.S. military-related projects at Stanford University in the 1950s helped to establish the region as a hub for science and technology.
But the government did not create today’s Silicon Valley.
Its culture and innovation has been built over time by ambitious, creative individuals willing to take risks and try new things.
Several studies echo this point.
The MIT Technology Review, the U.S. Government Accountability Office, the Fraser Institute, and the National University of Singapore all concluded that government “innovation cluster” policy and funding simply do not work.
Trudeau is ignoring the evidence in front of him, and forging ahead anyway.
Silicon Valley investors have a name for what the Trudeau government is selling. They call it “modern day snake oil.”
Finally, readers should know that my husband runs a Waterloo-based tech start-up that has an office in San Francisco and is funded by Canadian and Silicon Valley investors. While details of the government initiative are vague, his firm could conceivably benefit from it.