What do Milton Friedman, Elon Musk, Martin Luther King Jr., Robin Chase, and Noam Chomsky all have in common? They all are supporters of providing a universal basic income (UBI), which is defined as “a periodic cash payment delivered to all on an individual basis without means test or work requirement.” 

Providing everyone a basic income garners support from across the political spectrum, as people support UBI for very different reasons. Advocates for the policy argue that UBI could be the most effective way to fight poverty and advance gender equality — two key areas of focus for the social impact sector in a post-pandemic world — and support workers whose jobs are at risk of automation, or layoffs in the wake of COVID-19. 

All of these benefits of implementing UBI may well exist. To ensure the brevity of this opinion piece, I will focus solely on the potential of a universal basic income that could unleash Canadians’ entrepreneurial potential through and after COVID-19. 

Canada’s Vanishing Entrepreneurs 

While entrepreneurship has become increasingly glorified, in reality the percentage of Canadians creating new businesses has been decreasing over the past four decades. The number of new businesses created declined from “about 164,000 in 1984 to about 138,000 in 2013,” even while Canada’s population has grown by close to one third over the past three decades. And given the unprecedented economic challenges created by COVID-19, small businesses arguably face more challenges today than ever before.

While entrepreneurship has become increasingly glorified, in reality the percentage of Canadians creating new businesses has been decreasing over the past four decades.

As a study from The Bank of Canada states, “data show a clear downward trend in the firm entry rate in Canada since the early 1980s.” While the report indicates a decline in entrepreneurship amongst almost all age groups, the decline is largely driven by lower rates of entrepreneurship amongst Canadians aged 25-44. From my experience leading Venture for Canada, I see this trend firsthand, as there are so many youth who want to become entrepreneurs but face a myriad of barriers and challenges to get started. 

The Consequences for Canada 

The aforementioned Bank of Canada report argues that the creation of new firms results in “more-productive firms replacing less-productive ones” and that “new firms can be a source of innovation as they “push incumbents to become more productive.” Simply put, a country with more entrepreneurs is more innovative and in the end more prosperous.  

Higher rates of entrepreneurship enhance labour productivity, which is defined by Statistics Canada as “gross domestic product (GDP) per hour worked.” Since the 1980s, Canada’s labour productivity growth rate has fallen from roughly 3% per year to around 1% per year, and there is the potential that this growth falls even further because of COVID-19. Additionally, in comparison to its peers, Canada is becoming less and less productive. According to a 2018 Business Council of Canada report, the average Canadian generated US$50 in output per hour of labour compared to US$60 per hour in Switzerland and US$65 per hour in the United States.

Declining entrepreneurship rates should be of concern to all Canadians. Fewer entrepreneurs results in lower labour productivity, a lower quality of life, and less financial capacity to invest in tackling social, environmental, and economic challenges. 

According to The Conference Board of Canada, labour productivity is “the single most important determinant of a country’s standard of living.” Declining entrepreneurship rates should be of concern to all Canadians. Fewer entrepreneurs results in lower labour productivity, a lower quality of life, and less financial capacity to invest in tackling social, environmental, and economic challenges. 

Barriers to Pursuing Entrepreneurship

According to a study from the National Bureau of Economic Research, entrepreneurs disproportionately “tend to be white, male, more educated, and more likely to come from high-earning, well-educated, two-parent families than salaried workers.” Having an economic safety net makes it far easier to take the risk of launching a business, arguably even more so today than ever because of the economic fallout that will follow COVID-19. Furthermore, coming from a privileged background provides one with enhanced access to the startup capital. Reflecting on my experience founding Venture for Canada, my socio-economic background played a crucial role in the organization successfully getting off the ground. 

Considering the soaring cost of living and ever-higher debt levels, young people increasingly have a far reduced ability to pursue entrepreneurship compared to past generations — and the COVID-19 crisis could further increase Canadians’ sky-high debt levels. Both the Bank of Canada and the Federal Reserve Bank of Philadelphia have found that there is a correlation between higher debt levels and reduced rates of entrepreneurship. This is a logical inference as an individual with a high debt load will often be more focused on meeting debt payments, rather than taking a significant risk to launch a new business. 

UBI and Unleashing Canadians’ Entrepreneurial Potential

A guaranteed income would give all Canadians, not just the economically privileged, an economic safety net to recover from the economic setbacks of COVID-19, and therefore increase the percentage of the population pursuing entrepreneurial initiatives. Through providing all Canadians with a guaranteed income, more Canadians will be empowered to take risks and create new entrepreneurial endeavours, be it a technology startup or a community-based social enterprise. 

There are relevant examples around the world of how similar approaches have sparked entrepreneurial activity. For instance, in France, the 2002 decision to allow “unemployed workers who start a new business to keep the right to their unemployment benefits for up to three years” resulted in a 25 percent increase in new firm formation. A UBI pilot project in Namibia led to a 20 percent increase in entrepreneurial income-generating activities amongst recipients. 

Universal basic income has the potential to unlock millions of “hidden” entrepreneurs who, because of life circumstances, do not have a fair shot at pursuing entrepreneurship

While more research needs to be done on the large-scale implementation of UBI and its social impacts, Canada needs to seriously explore, research, and test what a national guaranteed income program would look like and what would be its benefits and drawbacks. Any social intervention on the scale of UBI will have significant unintended positive and/or negative consequences, making it essential that this policy is carefully studied. 

Canada faces a crisis of declining entrepreneurship and labour productivity growth, which threatens our national quality of life, and could be exacerbated by COVID-19. Universal basic income has the potential to unlock millions of “hidden” entrepreneurs who, because of life circumstances, do not have a fair shot at pursuing entrepreneurship. Our people are our greatest asset as a country. A universal basic income would be an investment in each and every Canadian’s ability to create a positive impact on our country and our world.

Scott Stirrett is the founder and CEO of Venture for Canada. These are his personal views. 

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