The Disappearing Middle: Between 2007 and 2010, 527 Medium-Sized Firms Vanished.

Their Importance to the Economy Has Never Been Higher. Why Canada's Mid-Sized Mystery Must Be Solved.

02 June 2012

The Globe and Mail

Canada is in the midst of a chilling mid-sized business mystery. In just a few short years, hundreds of companies that employ between 100 and 499 people have vanished. This phenomenon is alarming because mid-sized firms are more productive, hire more Canadians and have more clout on a global scale. Global competition is fierce not only from Asia and other emerging markets, but increasingly from next door, as the United States lures manufacturers back home. Demographic factors of an aging population, meanwhile, are already set to curb Canada's economic growth in the years ahead, putting pressure on public finances and the country's tax base, making the vibrancy of its private sector all the more essential.

 527 mid-sized companies vanished between 2007 and 2010 - representing a drop of 3.6% compared with a rise of 2.6% of businesses in general, according to numbers compiled by the Business Development Bank of Canada. This shrinking pace is all the more worrisome given the outsized importance of mid-sized businesses, which represent 12% of Canada's gross domestic product and 16% of jobs. The country now has just over 14,000 firms of that size, compared with almost a million small businesses and nearly 3,000 large ones, leaving Canada overwhelmingly comprised of businesses too small to generate job growth, too small to drive an economic recovery, and ultimately too small to ensure the country can compete for trade with the new global superpowers in this post-crisis world.

Authorities have a few theories about what's happening, and several possible suspects. Canada's industry base is too concentrated on natural resources, and losing focus on technology. Canadians are reluctant to think outside their borders, or take on risk. Government incentives and economic conditions are hampering growth. While companies less than three years old tend to grow very rapidly, older ones stagnate and grow very little. And that could be attributed to the Canadian tax system that rewards small, and indirectly dissuades growth. Governments - federal and provincial - love showering preferential tax rates and other benefits on businesses that happen to be small.

Deloitte Canada, which is running its own investigation into Canadian companies' growth and its link to poor productivity compared to the United States and other major competitors, has another startling discovery to add to the mix: six out of 10 Canadian small-business owners are "lifestyle entrepreneurs" who have no interest in growing at all.