Last fall the C.D. Howe Institute published a report titled, "Measuring Innovation in Canada: The Tale Told by Patent Applications". Innovation is a fickle concept, and patents only tell part of the story. Yet when one sees that Atlantic Canada ranks last and well below the national average, it's hard to deny that we have a problem.
Readers of Entrevestor are well informed of the vibrancy of the East Coast startup scene, especially for its size. But venture capital and startup firms are not identical to innovation. They represent the fuel and ignition behind new ideas, and as any good Cub Scout knows, a flame will go out without a supportive surrounding structure to give it space to grow.
Rather than provide that space, governments in Atlantic Canada have too often opted to throw water on innovation before it's allowed to catch fire. A case in point is the government of Nova Scotia’s pending decision to regulate Airbnb, the technology platform for bed and breakfasts.
Airbnb is among the most successful startup companies of the last decade, but to Nova Scotia’s established accommodation industry it represents a threat. As such, the Tourism Industry Association appears to have been successful in lobbying the government’s enforcement power to the doors of everyday folk renting out their spare bedrooms.
There’s no doubt that this and similar interventions have a chilling effect on Atlantic Canada’s startups, as well as outsiders looking in. Take Bungalo.com, a startup developing a peer-to-peer platform for cottage rentals. Originally from Iceland, they recently chose to open an international headquarters in Halifax. I asked Bungalo founder and CEO Haukur Gudjonsson about how the Airbnb crackdown will affect them.
"If we were making the decision today to move our office to Halifax this would definitely be taken into the decision making process," he told me. "The interesting thing about startups is that they can, in most cases, be located anywhere in the world. And the decision on where to locate the team is usually based on facts like what location is most open and supportive to your type of startup."
There’s a myth that Atlantic Canada lags in commercializing innovation because of low access to capital. Yet as Gudjonsson points out, what's truly lacking is experienced capital: "The majority of young businesses get their early stage funding through governmental grants and loans, but would in many cases benefit more from getting experienced investors or VCs into the companies to guide them; to motivate them to chase sales instead of more grants."
With plenty of talented entrepreneurs like Godjonsson, the missing ingredient keeping experienced investors away from Atlantic Canada is the institutional embrace of permissionless innovation. Investors are quick to discount a great idea by its regulatory risk, given the power of new rules to stop a fast growing business in its tracks. Permissionless innovation is an approach to the regulation of new technologies that adapts to challenges as they arise, rather than shutting down new ideas to protect the status quo or out of excessive precaution.
To illustrate, take an area where Canada as a whole has excelled: Drone technology. In the United States, the Federal Aviation Authority (FAA) has all but banned the commercial use of drones, big or small, by requiring drone operators to obtain a pilot license and seek explicit permission from the agency (even to fly a small plastic quadcopter).
In turn, Amazon and many startups experimenting with drones have moved north, in particular to British Columbia, thanks to Transport Canada’s broad exemptions for permissionless commercial drone use and easy-to-acquire certificates for larger types of drones. As a result, Canada has pulled ahead with complementary innovations too, such as the world’s first insurance product for commercial drone operators.
Drones have many applications, from film production to agricultural crop monitoring. But what makes Transport Canada's embrace of permissionless innovation so exciting is that the full commercial potential of drones is still unknown. New applications are being discovered everyday as entrepreneurs are given the freedom to experiment, creating opportunities that no one can predict, much less micromanage, in advance.
This is just the tip of the iceberg. The last few years have seen major breakthroughs in artificial intelligence, off-grid energy, and genetic sequencing to name just a few. And in every one of these cases, entrenched interest groups and antiquated laws ensure the fruits of innovation flow to the jurisdictions with the most forward thinking regulatory scheme.
Just this month Nevada granted the first ever license for an autonomous commercial truck to Diamler Company. By now it's clear that in the coming years autonomous trucking will completely disrupt the transport industry. Atlantic Canada's regulators could embrace this fact and differentiate our region to prospective investors of all types. But don't hold your breath.
Our leaders have yet to recognize that encouraging innovation does not require another spending program or deeper pools of capital. Most often, what’s missing is the simple promise of government self-restraint.
Meanwhile, our provinces are preoccupied with balancing their budgets, creating disruptions of a different kind. Given this fiscal climate, efforts to expand tax credits and the like aren't getting far. The good news is that Atlantic Canada’s governments can choose to embrace permissionless innovation without it costing the taxpayer a penny.
Doing so would spark innovation across the region. The alternative is to allow our economy to go up in smoke.
Samuel Hammond is Nova Scotia native and Saint Mary's University alum who recently earned his Masters in Economics from Carleton University. He currently manages social media for the Atlantic Institute for Market Studies, and is slated to begin further graduate studies in economics at George Mason University in the Fall.
