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Business Formation, Entrepreneurship, Self-Employment and Capital Markets:
A Challenge Paper for the Intersections of Diversity Seminar
Meyer Burstein
The Context
As a result of the increasing dominance of market forces and economic globalization, policymakers,
academics and NGOs are taking a fresh look at the private sector, at business activities and at
entrepreneurship. They are concerned with competitiveness, on the one hand, and with the pattern of
opportunities and obstacles that globalization creates for diverse groups, on the other. However one chooses
to view the transformation that is underway, there is no escaping the fact that a growing number of
Canadians are being directly affected by changes in the way economic activities are organized.
The number of Canadians who reported working at their own business has doubled over the last twenty
years, increasing at an annual rate of over four per cent during the 1990s. This stood in marked contrast to
the sluggish expansion in the paid-employment sector. By 1997, the number of self-employed workers had
risen to some two and a half million, meaning that one in six Canadians was engaged in some form of
entrepreneurial pursuit (see Statistics Canada).
The expansion in self-employment has been disproportionately high among recent immigrants (both visible
minority and non-visible minority entrants), Aboriginal groups and women, and has been especially
pronounced among younger workers. Significantly, the growing earnings gap between foreign-born and
native-born workers -- apparent from the early eighties through the mid-nineties -- did not occur among the
self-employed.
Is the growth in self-employment due to push factors and poor opportunities in the paid employment sector?
Or, is it a result of a new appetite for entrepreneurship? The answer is likely a little of both. This being said,
self-employment would appear to offer interesting opportunities to new immigrants and to persons
experiencing social and economic exclusion.
This paper is based, in part, on a roundtable discussion, hosted by the Metropolis Project in Ottawa on
October 25, 2002. It is a discussion document for the Intersections of Diversity seminar and identifies key
policy and research topics in the area of self-employment and entrepreneurship and suggests private and
public interventions to promote and facilitate self-employment among diversity groups.
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Key Policy Questions
A critical assumption underlying the seminar and this paper is that some groups with intersecting diversities
experience special difficulties and are ill-served by current policy. Two possible remedies are envisioned.
The first consists of new policies, which are necessary because of interactive effects that occur in those
groups characterized by multiple identity markers meaning the total problem to be overcome is greater than
the sum of its parts. That is, the sum of the individual difficulties associated with various identity markers is
great than when these difficulties are examined in isolation. Discrete policy responses that address the
difficulties separately, rather than in combination, therefore do not suffice. The second remedy consists of
horizontal policy coordination wherein the onus is on government, and not on the individuals affect, to bring
together policies from different spheres. The key issue here is where the integration of policies should take
place and whether it is reasonable, or indeed possible, for disadvantaged individuals to integrate discrete
programs. Below, a number of ‘big picture’ policy topics and questions are set out:
How can entrepreneurship be promoted to confer trade advantages on Canada?
Policymakers have begun to ask themselves whether Canada’s immigration program and the growth of
ethnic communities might serve as a vehicle for promoting international trade and trade relations. For
example, policymakers are asking, “Has Hong Kong immigration enhanced Canada’s capacity to promote
trade with China and, if so, can this experience be reproduced?” In a general sense, policymakers would like
to know what domestic and overseas policies would allow Canada to capitalize on the skills, knowledge of
local conditions, and access to trans-national networks that our immigrants and ethnic, racial, and religious
groups possess to advance domestic trade and foreign policy goals.
A related concern involves the export of cultural products associated with diverse communities. Cultural
goods are among the most successful exports of the United States economy, with the music sector providing
perhaps the best example. The question for policymakers is whether “hybridized cultural products” (products
that blend together different cultures) that appeal to Canadians, might also appeal to overseas consumers
and, if so, how their export might be encouraged. There is reason to believe that an international market
exists for books and movies focused on the experience of immigrants and diverse communities.
Does the growing knowledge based economy offer significant self-employment opportunities for
diverse individuals?
Economic globalization and technological advances are transforming the domestic job market. Especially
salient is the development of a knowledge-based economy in which skills and education are highly valued.
A particular feature of this economy is its tilt towards mathematics, programming and technology. This may
offer opportunities to diversity groups with qualifications not recognized by employers, notably those from
non-traditional immigration sources (Asia, in particular), or those who face linguistic and cultural barriers in
traditional jobs. The ethnic, religious and racial composition of engineering, science and technology
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programs at universities and community colleges would appear to support this argument, as does the
composition of high-tech startups and the growing tendency within the high-tech sector to export jobs.
Policy-makers need to know if there is significant, untapped and underutilized potential among diversity
groups in Canada and, if so, how it can be promoted and harnessed.
What are the principal obstacles to self-employment and business formation faced by diversity
groups and how can these be removed?
Many of the barriers to self-employment and business formation are similar to those identified in the research
and policy on paid employment, including credential recognition, language barriers and outright
discrimination. Other barriers are related to access to capital, to business expertise, and to business
networks. Given the size and rate of growth of self-employment, obstacles to entrepreneurial activity -particularly obstacles associated with different identity markers – must be eliminated. This is a corollary of
public concern over obstacles to the recognition of educational and occupational credentials. The challenge
facing public policymakers in this case is how to intervene effectively in a field that is quintessentially privatesector.
Most Relevant Intersections
Although most, if not all, of the markers of identity are important in this policy area, some intersections would
appear to be more relevant than others because of policy gaps or a lack of policy co-ordination. Throughout,
there is a need to distinguish between intersections, or markers, that change with time (national origin, for
example, which may be strong initially but gradually decay) and those that do not, such as race and gender.
It is also useful to distinguish between markers that are externally ascribed, such as socio-economic status,
and those that are internally identified, such as religion.
The following intersections were identified in the literature and in the course of the roundtable as having
particular salience because the identified groups are relatively large, the intersections engage key policy
issues, and they have already stirred the interest of policymakers. Research and policy should consider
carefully the effects of these intersections, in particular, on self-employment and business formation issues.
(i)
Gender, religion, ethnicity and visible minority status
(ii)
Gender and disability
(iii)
Aboriginal status and gender
(iv)
Disability and ethnicity and race
(v)
Immigration status and ethnicity
(vi)
Immigration and region
(vii)
Official language and race and ethnicity
(viii)
Youth and ethnicity
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(ix)
Age and ethnicity and disability
(x)
Education and other identity markers
Future Research Directions
A review of the literature and discussion at the roundtable led to the conclusion that entrepreneurship and
self-employment are under-researched in Canada. In particular, more work is needed regarding business
formation, the context in which self-employment develops and the factors that either promote or retard
business development.
Complicating the research situation is the fact that self-employment is ill-defined and data are lacking.
Statistical problems are especially acute where women are concerned, which results in their exclusion from
many studies in spite of the fact that self-employment has been growing more quickly among women than
men. More and better data are needed.
A particularly important area that deserves further study, across the board, is whether the growth in selfemployment is due to barriers and blocked mobility to other types of employment or whether it results from
emerging opportunities associated with economic restructuring. There are few studies of this phenomenon,
especially studies of groups characterized by multiple identities.
Finally, it is important to determine whether new policies are needed to address interactive effects, or
whether better policy coordination and delivery by government agencies can adequately address the additive
effect of multiple identities. Researchers should be encouraged to publish on both the non-existence and
existence of interactive effects. Below are additional topics that warrant further investigation.
Research to better understand the institutional context in which entrepreneurship and selfemployment develop and to sort out how this context influences business formation.
Much of the literature on entrepreneurship by members of diversity groups, including immigrants, views the
activity through a lens of social and economic incorporation, “explaining” entrepreneurship in terms of
economic specialization, discriminatory barriers and social capital (of the group in question). Recently,
drawing on international comparative studies, the investigation has broadened to include an examination of
national structural features and the institutional context in which entrepreneurial activities occur. A
particularly fruitful area for exploration concerns the role of ethnic businesses in minority enclaves and the
manner in which national and local institutional factors come together. A better and more comprehensive
understanding of this larger institutional context – including its influence on social capital formation and on
social and economic barriers – would provide policymakers with a broader tool-kit, one that would allow them
to intervene at a more fundamental level. Research is also needed to gain a better understanding of
business networks, both mainstream and diversity networks, and how they interact.
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Research on the barriers to self-employment for individuals with intersecting identities.
Very little research has been carried out to determine the influence of single identity markers, such as race,
religion or gender, on access to financing, business expertise, and business networks, or recognition of
business qualifications, for example. As research on single identity markers is conducted, special attention
should be paid to intersections and to groups characterized by multiple identity markers. In particular, a
deeper understanding of interactive effects for groups facing multiple barriers as a result of having multiple,
intersecting identities would be especially helpful.
Research to investigate whether Canada’s diverse citizens possess skills and knowledge that would
allow penetration of foreign markets and extend Canada’s influence.
The existence and behaviour of informal transnational networks is an under-researched field. To date, the
bulk of the work has been conducted by anthropologists, geographers and sociologists. There is a need for
additional quantitative and qualitative research by economic historians, economists and business analysts.
Similarly, the investigation of potential markets outside Canada for “hybridized” Canadian cultural products
has received virtually no attention from Canadian business schools and economic analysts. If Canada’s
unique multiculturalism and immigration policies are to be instrumentalized, research is needed to establish
whether the “Canadian way” can yield economic as well as social dividends. Particular attention should be
paid to the extent to which self-employment and entrepreneurship involving persons with multiple identity
markers could play a role in this area as it develops.
Research on best practices in business formation by minority groups.
Analyses of program interventions have focused on paid employment and the effectiveness of policies to
address barriers encountered by job seekers, but very little analytic attention has been given to innovative
private and public measures that target self-employment and business formation. Numerous federal and
provincial departments run programs that, either directly or tangentially, target self-employment and
entrepreneurship, and there is considerable scope for cataloguing and evaluating best practices both
domestically and internationally.
Possible Program and Policy Responses to Stimulate Self-employment and Entrepreneurship
Enhance access to financing.
Limited access to finance, especially at start-up, is a problem facing all small businesses, but it is particularly
problematic for members of diversity groups. Evidence of this appears in studies from Canada, the United
Kingdom and the United States. A major investigation recently undertaken in the United Kingdom suggests
that the problem of obtaining financing affects some diversity groups more than others depending on the
extent to which they must rely on the banking sector for their initial financing. For example, East Asian
communities, which tend to rely less on banks for start-up financing, may be less affected. Among the more
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important factors that impede entrepreneurial activity are discrimination and inadequate communications
between the banking sector and certain diversity groups.
Recommended improvements include suggestions that banks “leverage the best practice of individual bank
managers, introduce cultural awareness training for staff …and take steps to increase diversity within the
workforce at all levels.” As well, there are suggestions for increasing the transparency of loan evaluations,
strengthening relations with community intermediaries (such as accountants) and increasing community
awareness of alternative funding sources.
Enhanced disclosure of loans and banking practices may also yield significant benefits, according to
American studies. These reveal substantial increases in lending to low income parts of a city as a result of
comparisons among different lenders. A number of the diversity groups identified above might benefit from
such disclosure – providing their numbers are such as to protect the privacy of bank customers.
Provide support for community groups and community development corporations.
Public support could be made available to community groups or to community development corporations that
assist members of diversity groups who want to start a business. A number of such organizations already
exist across North America providing outreach services and tailored start-up assistance to underrepresented
groups, and excellent domestic examples include Industry Canada’s Aboriginal Capital Corporations and the
Community Future Development Corporations program, which both offer small loans and business services
to Aboriginal entrepreneurs. Other community strategies could focus on developing partnerships and
creating bridges to existing, mainstream business service providers, as well as on identifying and exploiting
opportunities across diversity communities. The community development model could be extended to what
is coming to be known as “venture philanthropy” wherein the lessons of venture capital would be applied to
not-for-profit organizations run by diversity groups. Such groups could form ‘on-line’ and would not have to
be geographically co-located.
Retune the immigration program to better support business development.
Aside from the entrepreneur and self-employed programs, Canada’s selection and admission programs
focus primarily on labour markets and paid employment. A systematic review of the extent and manner in
which Canadian immigration policy supports broader trade and business objectives, as well as regional
development objectives and small business formation, is needed. An important component of this study
would examine how immigrants with additional identity markers can participate in and contribute to the
knowledge-based economy and to spreading its benefits to regions across Canada.
Insofar as business immigration programs are concerned, federal and provincial governments should join
forces to study how best to improve the success of business immigrants. As part of this effort, Canadian
settlement programs, which focus on facilitating entry into paid employment, should be extended to facilitate
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self-employment and business formation. Public support is needed to develop and expand diversity
business networks in the same way that public agencies currently promote networks to assist members of
diversity groups in obtaining secure and rewarding employment.
Adapt, expand and integrate existing self-employment programs to meet the needs of diversity
groups, and create portals to facilitate access and service delivery.
Most business and technical assistance programs have a strong regional orientation, but Aboriginal business
development programs are a noteworthy exception, in that they focus on the personal characteristics of
program users. These programs therefore offer an interesting and well-tested model to promote selfemployment and entrepreneurship among diversity groups. Such targeting would represent a significant
change in “philosophy” for federal departments, such as Industry Canada and Human Resources
Development Canada (HRDC), which adhere to universalist models of service delivery, rather than models
based on the personal characteristics of users.
A number of existing federal programs could be adapted to meet the needs of diverse communities. For
example, HRDC’s Self-Employment Benefit Program, the Local Labour Market Partnership program (which
involves employer and community organizations) and the Canada Jobs Fund (which encourages
partnerships among governments, business and community organizations) could be extended to serve the
needs of diversity groups, especially those suffering from high unemployment. Similar demands could be
made of Industry Canada’s Business Development Bank (BDC), which runs the BDC Consulting Group and
provides management and skills development assistance, including support for export development.
Business services to diversity groups could also be modelled on Industry ’s Aboriginal Business programs.
These provide specialized assistance including Aboriginal community profiles, Aboriginal business
directories, counseling support, on-line business services, export and trade directories, access to youth and
work information networks and market analysis.
An important feature of Aboriginal business development programs has been the extensive interdepartmental
structure that exists to co-ordinate policy development and program delivery. This structure extends to
partnerships with provinces, municipalities, the private sector and NGOs. Instead of creating new horizontal
structures for each diversity group – a practical impossibility -- consideration should be given to creating
portals that would allow diversity groups to more easily navigate and access the expanding range of
government services that support self-employment and business formation.
Consideration should also be given to targeted advertising of government business services and to making
some of the services available in languages other than English or French, possibly by involving ethnic
business federations, because research shows that members of diversity groups are often unaware of
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available business services. Intermediaries, such as NGOs could play a valuable role in transmitting such
information.
Offer tax and financial incentives to encourage self-employment and business formation.
Financial assistance, in the form of subsidies, loans and tax benefits, could be directly provided to diversity
groups or channelled indirectly via development corporations. Alternatively, tax relief and subsidies could be
provided to encourage business studies among targeted diversity groups.
Expand the availability of language training.
Without adequate language skills, self-employed persons and entrepreneurs – typically immigrants -- are
confined to ethnic, religious and racial enclaves. Improved language skills, especially if oriented to business
needs, would give businesspeople access to a broader range of suppliers and opportunities to sell their skills
or products to a broader market. Because many small enterprises involve several members of the same
family – not all of whom receive remuneration – training should not be limited to principal wage earners.
Invest in anti-discrimination and race relations education.
Self-employed Aboriginal Canadians, as well as ethnic, racial and religious minorities face discrimination
directed against their businesses and their business activities in the same way as individuals in paid
employment. Business-focused anti-discrimination education targeted at schools, business associations,
lenders and consumers could be introduced to address this type of discrimination, which is often directed at
the individual’s business or business activities.
Create set-aside programs and offer contracting assistance for diversity groups.
Set-aside programs could be developed to allocate a fixed proportion of government contracts (in certain
fields) to groups characterized by single or multiple identities. A milder form of this would require government
contractors to seek tenders from diversity groups for a proportion of federal (and other government)
contracts. Still softer measures might include guidance and support for diversity firms and individuals on
tendering for government contracts and measures to raise awareness among government contractors of the
existence of diversity firms. Public Works and Government Services Canada could play a leadership role on
this front.
Amend Canadian Labour Legislation.
Canadian labour law has not caught up with the growing importance of self-employment. According to a
recent study, entitled Women and Homework: The Canadian Legislative Framework, which was
commissioned by Status of Women Canada, “Some laws, whether explicitly, by omission or by their
interpretation, partially or totally exclude the home as a workplace and homeworkers from the benefit of the
law.” The study recommends that policymakers “…address the new realities of homework by adopting clear
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standards that protect workers and enable both workers and employers to better understand their rights and
obligations.”
Although this study focuses on homework, as distinct from self-employment, the key point made here is that
stronger legal protections would disproportionately benefit diversity groups (by virtue of their overrepresentation) and further strengthen their incentive to embrace self-employment.
Conclusion
The growth of self-employment in response to economic globalization, coupled with the fact that diversity
groups appear to be “early adapters” and are more likely to pursue self-employment opportunities, suggests
that policy-makers and practitioners will need to direct more attention to entrepreneurship and its
consequences. The task is made even more urgent because of the lack of research in this area.
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