Imagine you are launching or running a startup and there's a place where all of your developers—the biggest expense for most tech companies—cost one quarter what they do in Silicon Valley. Sure, it's cold there, but talent is plentiful and the locals are friendly. Would you trade your hash browns for poutine?
Adam Adelman, co-founder of Mighty Cast, a startup working on a new kind of wearable technology, recently told me the Canadian government is paying almost 80% of his developers' salaries. And that's not a tax credit. It's a rebate, a check he gets from the government whether or not his startup makes money.
Even at Mighty Cast, a two-year-old hardware startup, salaries have been 80% of expenses. Combine that with the lower salaries demanded by engineers in Montreal, where Mighty Cast moved its headquarters after its genesis in Silicon Valley, and Mr. Adelman says he's able to stretch his angel round of investment four times as far.
But why should Canada throw all this money at tech? One reason is simply that high tech is the route to the post-industrial economy that all countries with any degree of central planning aspire to—just look at the explosion of the IT sector in China, abetted in no small part by its government. Tech represents high-paying jobs from an industry that isn't resource intensive and, in contrast to Canada's oil-sands boom, doesn't pollute. What bureaucrat wouldn't sign on for that?
That it requires incentives on this scale to attract companies from Silicon Valley, where capital and talent feed on one another in a virtuous circle, shows that the tech industry, like the markets favored by the companies it spawns, tends to be winner-take-all. When one dominant player grabs most of the resources, everyone else (Canada included) is forced to open up their treasuries to attract what's left.
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