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Suggested Citation:"6 Recommendations." National Research Council. 1999. Lighting the Way: Knowledge Assessment in Prince Edward Island. Washington, DC: The National Academies Press. doi: 10.17226/6413.
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6
Recommendations

By the nature and spirit of the Knowledge Assessment exercise, the recommendations are based largely on the information given and the views expressed by the participants in the various meetings and fora. These people are stakeholders in the future progress of PEI, and have deep knowledge of how the Island economy works. Nevertheless, disagreement and even controversy among the participants marked several of the meetings, and this report represents the committee's best effort to arrive at a reasonable picture of the Island, from which the recommendations follow. By the same token, it was not possible to become aware in a short time of all the initiatives that already have been taken in the recent and distant past in each area. Consequently, the comment, "been there; done that; didn't work," was frequently heard.

It would be foolish to fail to learn from the past. On the other hand, a feeling that there is a present need for new initiatives motivated the proposals made here. It is possible that if in fact there had been an earlier similar initiative, it was not demonstrably effective. It is possible that it had not been in place long enough to have realized its potential benefits. It may also be that the earlier initiative was well conceived and well executed, but was "before its time." Sometimes an effort may fail because the time was not right, and a repeat effort could be successful. In any case, there may be value in suggesting ideas that have already been tried in PEI, simply so that they might contribute to understanding whether the earlier attempts failed, and, if so, why.

The proposals described below arose implicitly or explicitly from the virtual case studies. This means that the participants identified a barrier to the success of "their" enterprise and suggested a solution. These suggestions were generalized

Suggested Citation:"6 Recommendations." National Research Council. 1999. Lighting the Way: Knowledge Assessment in Prince Edward Island. Washington, DC: The National Academies Press. doi: 10.17226/6413.
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and details were filled in, and they were discussed in interviews with other potential stakeholders and public officials during the validation phase. The table below describes in general terms the origin of each of the proposals. An X in a column indicates that the findings of the case study contributed to the recommendation. XX indicates that it was the principal source.

Climate For The New Economy

The experience of successful centers of enterprise creation like Silicon Valley has led many jurisdictions to create business incubators and development centers to try to duplicate that environment. However, the specific issues that arose in the virtual case studies did not lend themselves to remedy through incubators, and we hesitate to recommend such initiatives. More to the point appear to be cultural factors and the difficulty of securing resources, both material and human.

Recommendation

Chitin Production

Swine Breeding

Electronic Commerce

Wind Turbine Manufacture

Telemedicine

Center for the New Economy; training for investors

X

 

XX

X

 

Survey of telecommunications potential

 

 

X

 

XX

Anne of Green Gables theme

 

 

XX

 

 

Research policy

XX

X

 

 

 

Biosecurity

 

XX

 

 

 

Education and training; Youth Province

X

X

XX

X

 

Recruitment of Islanders-away

 

 

XX

X

 

First stage financing; microloans

X

 

XX

X

 

Suggested Citation:"6 Recommendations." National Research Council. 1999. Lighting the Way: Knowledge Assessment in Prince Edward Island. Washington, DC: The National Academies Press. doi: 10.17226/6413.
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Center for the New Economy

Consequently, we propose consideration of a rather different type of facility, a center to assist, mentor, encourage, and educate entrepreneurs, that could play a central role in addressing these issues. In the box, an example called the Center for the New Economy (CNE) is described. Among the types of assistance made available would be self-help legal services, marketing advice and assistance, and mentoring. As important as services to existing and emerging businesses, however, would be the educational value for students at all levels.

Along with financing, training and assistance are most important to promote the entrepreneurial class. Training in new venture creation is a relatively new discipline, and PEI could become a leader in this area. The training is important for two groups of clients. One is the entrepreneur. Such initiatives as mentoring programs, organized within the private sector, have been shown to be effective in other jurisdictions. For example, an aspiring entrepreneur can be assigned an experienced business executive to advise him or her on a systematic or informal basis. It could also be a vehicle for recruiting from the Islanders-away community. Successful former Islanders might be pleased to advise a young entrepreneur on the Island, and interest ignited in this way could result later in deeper involvement.

There are services required for quality control and compliance with international regulations in the new economy that should be made available in PEI. Some of them could be provided or coordinated through the Center. Training and certification for ISO 9000 compliance, as well as Good Laboratory Practices and Good Manufacturing Practices, will be required for export of high quality products. Technical services such as norms, standards, metrology, and calibration would serve industry while potentially providing a training resource for students. Coordination of marketing campaigns, expensive from PEI because of the high cost of travel from the Island, could involve an off-Island marketing office available to serve as a focus for Island business. To the extent that these initiatives require collaboration in the common interest among a variety of businesses and producers, the Center might serve as the organizing force.

Elements of the CNE have been in use in many places for a long time. One example is the Initiative for a Competitive Inner City (ICIC) in Kansas City, Missouri. This is an experimental partnership that includes, among others, Harvard University, the University of Missouri, and the Ewing Marion Kauffman Foundation. The idea is to build on the competitive advantages inherent in an inner city location to stimulate private enterprise there. A package of services, not unlike those proposed for the CNE but specifically tailored for the urban core, is offered to small businesses that locate there. The CNE designed for PEI likewise will be organized to respond to a specific, identifiable set of needs. It will provide and integrate a set of services that are tailored to the economic needs of PEI and

Suggested Citation:"6 Recommendations." National Research Council. 1999. Lighting the Way: Knowledge Assessment in Prince Edward Island. Washington, DC: The National Academies Press. doi: 10.17226/6413.
×

Center for the New Economy

If the art of new venture creation can be taught, and if action can be taken to improve the cultural propensity for entrepreneurship, then the issue arises of what kind of institution is best suited to those tasks. This is a sketch of one of many ways that such an institution might be created on Prince Edward Island. Its purpose is to stimulate discussion, rather than set out a prescribed solution, which must originate within the Island if it is to be effective.

A Center for the New Economy (CNE) could be created as a joint public-private partnership. The CNE would have three functions. First, it would serve as the locus for discussion of the new knowledge-based economy and issues surrounding it. Second, it would be a center for research on entrepreneurship and new venture creation within the specific context of Prince Edward Island. And third, it would be the platform for the development and use of teaching programs on entrepreneurship and the new economy. These teaching programs would include the primary and secondary schools, the colleges and universities, and executive education for the business community.

The partners in creating the CNE should be drawn from all segments of the PEI economy, public and private. Each must have a stake in the success of the CNE and each must be able to participate effectively in its governance. A leader must be found with both an understanding of entrepreneurial behavior and with an appreciation for the unique PEI culture in which it would be embedded. A Board of Directors that holds fiduciary responsibility and represents effectively the interests of all stakeholders should be chosen.

The kinds of program that a CNE would seem uniquely suited to develop include:

  • encouraging and enabling a dynamic, entrepreneurial culture on the Island through educational programs at the primary and secondary school level;
  • linking the technology base of PEI, private as well as university, with entrepreneurial courses, if possible at the graduate level, in the universities;
  • creating effective mentorship for new ventures, in part through expatriate Islanders who might be induced to return, if only briefly;
  • enabling the wise use of capital resources by both government and private investors, especially for first stage venture investment; and,
  • providing or arranging for facilities and support for new ventures with the potential for significant growth.

This prototype, or one like it, could be used as the point of departure for an Island conference aimed at designing such an institution. The conference could set out the key desiderata, and a design team appointed to complete the job and select a leader.

Suggested Citation:"6 Recommendations." National Research Council. 1999. Lighting the Way: Knowledge Assessment in Prince Edward Island. Washington, DC: The National Academies Press. doi: 10.17226/6413.
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that mesh with and support its unique culture. Accordingly, it will evolve in structure and function as its experience grows and as the economy of PEI matures.

Training for Venture Capitalists

The other sort of training is relatively untested. This is training for venture investors, an activity that requires no less skill than the entrepreneur's. Knowledge of management, finance, schemes for taking—and relinquishing—equity, and of finding sources of technical assistance for a fledgling enterprise are the basic elements. Such a program could attract prospective investors from the entire Atlantic Region, or wider. It could be presented in a high technology format led by experienced investors from New York or Toronto or in an agreeable elder-hostel type format for the retired investor, including the retired Islander.

The Knowledge Resource Base

The absence or availability of the technologies necessary to create knowledge-based enterprises was a major focus of the virtual case studies. There we started with the opportunity and explored whether the resources necessary to realize it were available or achievable on PEI. It is possible also to reverse the process. Something along these lines was done when Island Tel decided to create a broad-band backbone throughout the Island. Cap sites, points of presence, and broad-band installations appeared in schools, libraries, and community centers, ready to be expanded to businesses for a relatively low additional fee. To date, however, applications have barely begun to tap the capacity of the infrastructure. But the opportunity remains, and we would suggest a further effort to capitalize on it.

Survey of Telecommunications Potential

The telemedicine case study produced a recommendation that a survey be held to determine by geographic location the incidence of certain diseases or conditions, patterns of morbidity and mortality, and the location of the corresponding medical services or specialties for assistance in strategic planning and marketing of telemedicine facilities. With use of a geographical information system package, this could be an effective tool for marketing as well as planning. We would propose that such a survey be carried out, and it also explore opportunities or needs for other services that would take advantage of the telecommunications potential of PEI. Distance education, high speed Internet usage, information services, and other unmet and unrealized opportunities should be explored in order to put to work the high powered network that would be the envy of any jurisdiction. As a follow-up, Island Tel might consider offering shared or fractional lines that would allow users to match band width to need at a lower cost.

Suggested Citation:"6 Recommendations." National Research Council. 1999. Lighting the Way: Knowledge Assessment in Prince Edward Island. Washington, DC: The National Academies Press. doi: 10.17226/6413.
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Anne of Green Gables

The electronic commerce case study discusses the significant opportunities in the area of creating applications and content for the IT sector, particularly the Internet. While the rapid growth of the Internet creates new opportunities, however, it also makes it more and more difficult to stand out among the millions of competing Web-sites. Gifted writing and graphic design will become essential to success; so will having a unique and interesting story to tell. In this regard, PEI has some features and attributes that are known world-wide, most notably Anne of Green Gables (see box) and the Confederation Bridge, which offer significant

The Anne-With-An-E Brand

Anne of Green Gables is, in the words of Mark Twain, "the dearest, and most loveable child in fiction since the immortal Alice." The book, penned by Prince Edward Island author Lucy Maud Montgomery in 1908, has sold tens of millions of copies world-wide, and been translated into dozens of languages. Although its appeal to young people (as well as a growing audience of adult readers) is universal, the book and its sequels, with their twin attributes of a strong independent heroine and lyrical descriptions of the physical beauty of Prince Edward Island, have found particular resonance in Japan.

Indeed, the Anne character's recognition far outstrips that accorded PEI itself. Senior Japanese executives, polled on the potential for language courses in PEI, had by and large never heard of the place before, but every one knew of the "Island of Anne of the Red Hair." The global penetration of this highly positive image and theme were characterized in the virtual case study as a marketer's dream, creating substantial opportunities for PEI.

As profiled in the virtual case study, direct development of the Anne theme itself in electronic commerce can open doors to a host of other PEI products and services. More generally, the "Anne brand'' can be used to complement and advance a broader "PEI brand" strategy, creating linkages and establishing a positive climate of acceptance. The emphasis in the Anne books on PEI's exceptional beauty and wholesomeness provide powerful reinforcements to the qualities to be associated with the PEI brand.

To realize these benefits, it is essential that PEI secure rights to the electronic Anne image and theme. In light of the current bewildering diversity of images and depictions of Anne, the opportunity to create a more consistent image for the theme should also be explored. Priority should then be given to high-quality, strategic development of the Anne theme and establishment of the Anne brand as an exclusive attribute of PEI.

Suggested Citation:"6 Recommendations." National Research Council. 1999. Lighting the Way: Knowledge Assessment in Prince Edward Island. Washington, DC: The National Academies Press. doi: 10.17226/6413.
×

comparative advantages to PEI if effectively exploited. Other unique characteristics of PEI, such as its "Island way of life" and its distinctive culture and heritage may not be as well known globally, but also have substantial promise to help PEI stand out and succeed in the global electronic marketplace and society. Emphasis should be placed on identifying, securing rights to, and exploiting these themes.

Research and Development Policy

In two of the knowledge-based opportunities that were explored through virtual case studies, chitin and swine breeding, research on a pilot plant level was an essential prerequisite to determining the feasibility or the success of the vanguard enterprise. In some technical areas, PEI is well supplied with research capability; notable among these is veterinary medicine, agriculture, and food technology. In other areas the capacity is not so apparent. The source that a knowledge-based enterprise might approach in other jurisdictions—graduate students and their professors at the university—are not present in most fields. We would propose that special, urgent attention be placed on establishing research programs at the university in fields of most economic importance to PEI. We also urge that sufficient flexibility be afforded to the Federal and provincial laboratories to carry out generic technological research to benefit producers on the Island, even where it does not maximize net income. This could be contract research, with appropriate proprietary safeguards, or exploratory research that could benefit classes of enterprises.

A provincial research policy should be developed to guide the allocation of resources to the research and development establishment. This policy should be based on a clear understanding of the extent, nature, and quality of the current research effort throughout the province. It should lead to a competitive portfolio of research initiatives, from basic research intended to encourage student and researcher interest in such areas as marine sciences, agronomy, and computer sciences to applied research in the potato, crustacean, or tourism sectors. The portfolio principle, borrowed from Bay Street or Wall Street, means that not every research project must be a success, and risks are justified, so long as the cumulative results from all the projects result in a net long term gain for the province. Included in the calculation should be also the awareness of discoveries and advances elsewhere that research programs will bring to the province. A Premier's advisory council of prominent scientists or an association for the advancement of science could mobilize the technical community in this effort, while bringing many other benefits in terms of linkages and public awareness.

Biosecurity

Knowledge resources will appear in many forms, as does knowledge itself. Some will be technologies amenable to research and development, but there will

Suggested Citation:"6 Recommendations." National Research Council. 1999. Lighting the Way: Knowledge Assessment in Prince Edward Island. Washington, DC: The National Academies Press. doi: 10.17226/6413.
×

be other types of knowledge resource that can be exploited for the prosperity of the Island. One such resource is the potential for establishing PEI as an island of biosecurity for the purpose of raising seed crops and breeding herds of high value. This concept was at the heart of the virtual case study of swine breeding; details are given in Appendix 3 and in the box in this section.

We see biosecurity as a resource that can have international value beyond swine, potatoes, and the particular local products of PEI. In recent memory, the world has seen devastating disease decimate the swine herds of Taiwan and Haiti, and a retrovirus threatens the poultry industry of North America. Prince Edward Island could offer a resource that would help secure the world's food supply, either as a depository of germ plasm or a facility for reconstituting decimated herds.

There are several advantages to PEI as a biosecure reserve. Most obviously, it is an island with only one land link. It is big enough to have a viable and mixed agriculture sector with crops and livestock and agricultural research in place, but small enough to control transit of agricultural products. The crops in rotation with potatoes—forages, grains, and legumes—make PEI self-sufficient in feeds. The livestock industries also provide valuable manure soil enhancers. The soil, albeit not fertile, is considered among the best in Canada for agriculture with suitable amendments, being stone-free and relatively level, and therefore suited to a wide range of temperate climate crops. Producers in several sectors are highly organized, capable of establishing and pursuing a strategic direction. Past examples of quality control include the eradication of bacterial ring rot in potatoes and maintenance of low-disease status for bees and strawberries and high health hogs.

We recommend that a world conference be convened, in which the World Bank, the United Nations Food and Agriculture Organization, and the International Board for Plant Genetic Resources (IBPGR) be asked to play major roles, in order to consider issues related to the security of the global food system and examine the opportunities for designating PEI a world biosecure area. Other International Agricultural Research Centers associated with the World Bank-led Consultative Group on International Agricultural Research should be included as well to explore opportunities for links with the University. Following the conference, an action plan can be prepared for implementing the recommendations. However, it is important also to analyze what, if any, development or lifestyle alternatives might be foreclosed by the controls necessary for biosecurity. Among the issues to be considered are the annoyance of searches at the crossing and objections in the World Trade Organization from countries whose products are excluded.

Human Resource Development

It is sometimes said that the asset whose value appreciates, not depreciates, with time is the learning human being. Learning is not something that begins and

Suggested Citation:"6 Recommendations." National Research Council. 1999. Lighting the Way: Knowledge Assessment in Prince Edward Island. Washington, DC: The National Academies Press. doi: 10.17226/6413.
×

Biosecurity

Prince Edward Island has characteristics that make it compatible with a special niche in high technology agriculture. The fact that the province is surrounded by the sea with one main point of entry provides the opportunity to develop a secure zone for the breeding and development of feedstocks of various animals, plants, and insects. Current examples of low-disease commodities produced in PEI are swine, potatoes, strawberries, bees, and aquaculture brood stocks.

Agricultural industries worldwide are striving to compete in the global market where commodities are traded freely and low cost production is usually the determinate of success. However, an important component of low cost commodity production is a source of low disease breeding stock. There is risk in raising breeding stock close to centers of intense, high volume production because of the possible spread of common diseases. Producers are cautious about buying breeding stock that may bring a new disease challenge into their operation, so they demand "clean" stock.

PEI could control the entry of plants and animals to establish a biosecure zone for the propagation of breeding stock or nursery stock. These ventures are more profitable than commodity production but require more technology and research support, such as diagnostic services, epidemiology, genetic improvement, and cryopreservation. These ventures tend to be smaller than the commercial prototype raising animals or plants, and could be compatible with the pastoral setting and tourism industries.

Combining technology available from the Belvedere Group of research facilities with the geographic characteristics of the Island could allow ventures to develop that serve commodity production worldwide. Certain strains of animals, such as pigs genetically engineered to provide organs for human organ transplant or blood transfusion, are extremely valuable. PEI could become a safe haven for these strains away from the risks posed by high volume production in a non-biosecure area.

In addition to technological support, a biosecure zone would have to be maintained by controlling commerce and movement of biological materials. PEI would need more stringent rules on transport of plants and animals than would provinces or countries without a low disease status. Policy priorities are different for the production of genetic-based products (breeding stock) than for commodity production. Such policy requirements could be seen as trade barriers by other jurisdictions unless these special needs are adequately defined, explained, and defended. However such efforts in policy and regulation development can foster venture development on the Island.

Suggested Citation:"6 Recommendations." National Research Council. 1999. Lighting the Way: Knowledge Assessment in Prince Edward Island. Washington, DC: The National Academies Press. doi: 10.17226/6413.
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ends in school but must go on throughout life. But as children learn other skills at schools, so do they learn to learn.

Education and Training

Much of today's, and certainly tomorrow's, learning will involve the use of computers. Computers should be incorporated into the learning process at the earliest possible stage. The students can not be prepared for work, scholarship, or a full life without becoming familiar with what is becoming an essential tool for nearly all human economic activity. Leaving computer literacy for the home is an unacceptable kind of elitism, for not every home has a Nintendo, still less a computer. It will not be long before a school without computers will seem as anachronistic as a business today without computers. Should the educational enterprise be the last sector of society to embrace this transforming technology?

At the secondary level, such devices as science fairs and enterprise clubs provide the incentives and motivations for students to think about entrepreneurship. Youth Province described below is another example of an activity that could stimulate thought about careers, skills, and entrepreneurship.

At the university or college level, the goal must be to train and retain the most talented and energetic students. At present most students who intend to pursue graduate education must go off-island. There they often become engaged in the local technical and educational community, are subject to recruitment by local, national, or international companies, and are less likely to return to PEI upon graduation. Another loss of talent to PEI is the graduate who for any reason does not wish to leave the Island, and is therefore unable to continue his or her education in such fields as computer science, business administration, or biotechnology. A small number of high quality masters and eventually even doctoral programs in selected fields of particular advantage to PEI, like marine science and engineering, would change the climate of education on the Island. The additional benefit to the local economy would come from the presence of a cadre of research professors and graduate students, available for consultation and employment with local industry. This should be a high priority of the new knowledge economy.

Recruitment of Islanders-away

Of more immediate impact would be a program or campaign of recruitment and retention of skilled people from off-Island. A jobs-net that placed advertisements in major North American journals and magazines and set up recruitment tables at selected technical conferences has been effective for other jurisdictions. So might be a campaign that specifically targeted Islanders-away, from new graduates to experienced, skilled, and wealthy individuals at the peak of their careers. Many developing countries have been able to profit from efforts aimed at

Suggested Citation:"6 Recommendations." National Research Council. 1999. Lighting the Way: Knowledge Assessment in Prince Edward Island. Washington, DC: The National Academies Press. doi: 10.17226/6413.
×

Youth Province

As a magician may once have said, "If you want to pull a rabbit out of the hat at the end of your act, you have to put the rabbit in before the act begins." If the entrepreneurial spirit is to blossom in the graduate, it should be planted in the student. A way of engaging the school population at an early age in the opportunities in business is the so-called "Youth Province." During a week's school holiday, students from all over the province could run and operate their own mini-province. They would elect their own political leaders and appoint judges and lawyers. Some will take the role of businessmen and women and start businesses. Others will be bankers and offer them financing (or not!). To be successful, the exercise must be prepared for several weeks in advance with special classes explaining the functions of the various parts of society and the economy that they will be enacting. The experience of several cities in North America that have carried out this type of activity has been very positive. It helps children as young as sixth grade to understand in a hands-on practical how society works, and enables some of them to realize that there is an entrepreneurial alternative to a "normal" nine-to-five salary job, one that will involve training, initiative, and hard work, but is within their grasp.

recovering the lost subjects of an earlier brain drain, who return to their homeland bringing back their education, experience, and resources. Turkey, Peru, Malaysia, and more recently China, provide examples of what can be done through alumni programs, tours of the homeland, and advertising campaigns.

Priority should be given not only to regaining some of this talent, but also to retaining talent that has not yet left. Although Islanders' intense loyalty to place was cited as one of the strengths of PEI, it should not be taken for granted. If these goals are to be achieved, a change in attitude and a change in image may be required. For example, prominent among the features of the Island that are used to attract new industry is the low wage structure of the Island. It is sometimes compared by boosters to Mexico as an attractive site for labor-intensive industry. It is clear that the same image will not be helpful in the attempt to attract new knowledge workers.

Consideration should also be given to investing year-round in culture and cultural activities, both in society at large and within the school system. This would enhance the quality of life, and maintain and strengthen the sense of attachment and identity that Islanders hold about their home province. It would also foster and encourage the creativity, which is a strength of the Island, and a key asset in the rapid growth of content aspects of information technology.

Finally, another aspect that attracts the kind of skilled, energetic personali-

Suggested Citation:"6 Recommendations." National Research Council. 1999. Lighting the Way: Knowledge Assessment in Prince Edward Island. Washington, DC: The National Academies Press. doi: 10.17226/6413.
×

ties that are required for the knowledge economy is a competitive atmosphere. The famous examples of Silicon Valley, Route 128, and others were known as places where one could make it big, but also as places where many would fail, some more than once, but where one could fail and recover to try again and succeed. An atmosphere of protection by government and of subsidies to weaker competitors is not one that attracts or breeds winners.

Use And Application Of Knowledge For Wealth Creation

Perhaps the most important predictor of the success of a jurisdiction in the global economy is the economic and social climate that is presented to the would-be innovator and entrepreneur. We have seen some of the indicators that are presumed to have led to the success of Silicon Valley, but there is little justification for trying to duplicate all of these in a totally different environment. Nevertheless, there are some initiatives that can be taken to influence the ecology of business and technology.

First Stage Financing

PEI can establish its own reputation as a cauldron of new opportunities, of success stories, and exciting startups. There are many elements to the development strategy, but none is perhaps more important than giving people an opportunity to pursue their dreams and ambitions. PEI has a generous attitude toward support of enterprises, especially direct financing from the government through such mechanisms as Enterprise PEI, Atlantic Canada Opportunities Agency (ACOA), Agriculture and Agri-Food Canada, and Industry Canada, and various tax measures that favor business coming to the province. There are private venture capital companies as well that have invested in the Island. The element that is largely missing is first stage financing, or seed capital.

First stage financing by its nature carries high risk. Successful private venture investors often have to write off four or more failures for each success; what makes it lucrative is that the payoff from success may be very high. Successful venture financing also requires skill in managing the risks inherent in a new venture and in recognizing the quality of a management team. Those that follow narrow bureaucratic rules or principles are less likely to develop profitable portfolios than those that invest in people, recognizing dynamic leadership, special knowledge, and a skilled and dedicated management team without preconceived ideas about favored sectors, number of jobs generated, or other arbitrary criteria. In particular, in the knowledge economy of today, appropriate recognition must be given to knowledge assets, as well as physical and capital assets, as a predictor of success. An independent board of directors of a facility that understands man-

Suggested Citation:"6 Recommendations." National Research Council. 1999. Lighting the Way: Knowledge Assessment in Prince Edward Island. Washington, DC: The National Academies Press. doi: 10.17226/6413.
×

The Alternative Agricultural Research and Commercialization Corporation

The Alternative Agricultural Research and Commercialization Corporation (AARC) is a wholly-owned corporation of the U.S. Department of Agriculture. It was set up in 1992 as a venture capital firm that makes investments in companies to help commercialize agriculturally based industrial products, non-food and non-feed, from agricultural and forestry materials and animal byproducts. An eleven-person board of directors provides policy and program directions, with at least eight coming from the private sector, representing processing, financial, producer, and scientific interests. The board decides in which projects to invest.

The Corporation receives an annual appropriation from the U.S. Congress. The number and size of awards are limited only by the amount of money available in the fund at any given time; the average initial investment in a company is $300,000. Applicants are expected to bring at least an equal match to the Federal funds. The AARC Corporation expects to recover its investments, plus a premium for the risk it has assumed. Its investments typically include an equity position, a royalty on sales, or a combination of the two. Usually, the agreements include an exit strategy for both parties within six to eight years. The AARC Corporation maintains a revolving fund, into which repayments from investments are placed for reinvestment in other companies or product lines.

Most of the Corporation's clients are small, rural-based firms. Preference is given to funding pre-commercialization activities in companies that already have marketable products, projects that benefit rural communities, and projects that are environmentally friendly. In its first five years of operation, the Corporation has invested $33 million in Federal funds and leveraged $105 million in private funds in seventy projects.

agement principles and invests in people is more likely to promote growth industries and lead to success and profit for the Island.

There are several models that would add business intelligence to the decision process and effectively guide government investing. One of the more interesting is the AARC Corporation set up by the U.S. Department of Agriculture (See box). But with this or other similar schemes, it is important to keep in mind that the payoff from venture investing comes from having a profitable portfolio dominated by a minority of large successes, not a collection of modest, safe picks. Risk necessarily involves some failure, but for the long term development of growth industries that will lead to more, higher paying jobs, some risk-taking is required, and that in turn will necessitate some separation between government accountability and the decision making of the risk-taking entity.

Regardless of the eventual benefit to the total economy of the Island, venture

Suggested Citation:"6 Recommendations." National Research Council. 1999. Lighting the Way: Knowledge Assessment in Prince Edward Island. Washington, DC: The National Academies Press. doi: 10.17226/6413.
×

capital is considered by many people to be an elitist activity. Thus the venture capital initiative might well be supplemented with other programs designed to encourage the fullest participation in the knowledge economy. For example, small loans, of, say, less than $20,000, can be targeted to support life-style enterprises: small retail or service businesses or franchises of larger companies that typically employ a handful of people but rarely lead to growth industries. Nevertheless such loans can be available to a majority of less well trained or financed individuals and command high societal support, besides fostering a spirit of enterprise. Here too, success is measured by rate of return to the entire portfolio, and it will be necessary to separate the decision making from political accountability. An independent board of directors with known skills and with absolute discretion to select recipients according to broad economic criteria will lead to better decision making and insulate the government from charges of favoritism or responsibility for losses. Microlending has a good track record in many parts of the world, with

A Microloan Program

Experience worldwide shows that the creation of new, growth-oriented businesses is not achievable by everyone. Yet a democratic society functions best when all persons are empowered to participate to the extent that their talents and ambitions allow. Indeed, small businesses healthy enough for an entrepreneur to support a family and perhaps one or two employees can make a valuable contribution to the economy and culture of the Island.

To stimulate such enterprises, a program of small loans for new businesses could be developed. This could spring from a modification of current government programs, or it could be a new initiative if funds permit. In either case, the central idea is to make small loans, perhaps with a ceiling of $20,000, available to small businesses. These would not be grants. They would be made in consonance with good business practices and with the expectation of a return of principal and interest.

To achieve this, the program must be administered by a private institution, not by the government. That would avoid the temptation to fund politically popular causes or groups, and even with the best of intentions, government officials are unlikely to be skilled business lenders. Government oversight is, of course, appropriate, since public funds would be used for the initial capitalization. Once capitalized, however, the funds could be replenished from the loan portfolio, and the lending mission might become self sustaining.

The microloan program should operate in close liaison with the other institutions for entrepreneurial support that would be developed on PEI, especially with those that mentor and train new entrepreneurs and with other, private investors.

Suggested Citation:"6 Recommendations." National Research Council. 1999. Lighting the Way: Knowledge Assessment in Prince Edward Island. Washington, DC: The National Academies Press. doi: 10.17226/6413.
×

microlending banks in places like Bangladesh claiming nearly one hundred per cent repayment rates. No worse should be expected in Canada. This would be principally a social equity program, but its popularity may help build support for a larger venture capital facility.

Other first stage financing facilities can be organized by the private sector. New ventures clubs can provide mentoring as well as finance, and associations of female entrepreneurs have been successful in promoting economic growth in other jurisdictions.

Having urged the government to facilitate start-up financing, we must note that a cultural characteristic cited by many participants, particularly from the private sector, was over-dependence on government. For new ventures on PEI, government serves as the gatekeeper, or financier of first resort. Even if a would-be entrepreneur does not need the money, he or she finds it advisable to approach government sources in order to get an imprimatur that will open doors to private funders. And, of course, it may be necessary to stake a claim and head off the possibility that a competitor will get the subsidy from government.

Where the good ideas are brought to government even before partners are sought, it is government that determines in large part what kinds of enterprise are supported and how they are run. Government and private investors have rather different approaches to a business. Government normally supports private business mainly in order to foster job creation; they would prefer a business with a larger payroll to one with a smaller. Private investors tend to have the opposite approach; they seek to minimize resources and think that the smaller the payroll the more productive the enterprise. Further, governments, like banks, tend to favor support for tangible capital equipment and to discount knowledge assets that can walk out the door. And there is a tendency to protect an investment from failure as only government has the power to do. These characteristics do not lead to the kind of lean, competitive productive sector that results in long-term growth and high-paying jobs.

We recommend that in the long term the government withdraw from direct involvement in private sector financing. In the short term, the proportion of successful applications for support can be reduced, and replaced in some cases with honorable mentions and referrals to private banks. The microfinancing or venture capital facilities with independent boards of directors proposed above are not inconsistent with this approach. Since they both require repayment or assumption of equity, they can generate revolving funds and be required to become independent and self-sustaining over the medium to long term, or they can be phased out, with the funds returned to the treasury.

Postscript

We realize that many initiatives already have been taken. The government is not unaware of the challenges of the developing knowledge economy, and it has

Suggested Citation:"6 Recommendations." National Research Council. 1999. Lighting the Way: Knowledge Assessment in Prince Edward Island. Washington, DC: The National Academies Press. doi: 10.17226/6413.
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responded with a number of valuable programs. Nonetheless, we observe that there is ferment and excitement in the technical and private sector communities, from the hands-on training effort of the community in Wellington to the sparks of initiative in the IT area to the organized developments of the producers' organizations in potatoes, swine, lobsters, and other commodities. Alert as the government is, it would seem to us that the private sector has the greater momentum. Participants in the activities of the Knowledge Assessment were knowledgeable about advances in their fields, realistic about the risks and opportunities, and prepared to take initiatives when given the opportunity to do so. One aim of governmental programs should be to encourage and open doors for the individual citizen, and to leave decisions and outcomes to their own perspicacity and fortune.

The process begun with the Knowledge Assessment was a useful one, beyond the findings of the present study. Several of the virtual case studies have resulted in deals, prospectuses, even recruitment of management teams, and some of the vanguard enterprises may one day become real enterprises. The process of gathering interested, informed, and energetic people in a structured exercise has proved catalytic, and in one form or another should be continued. This could one day become a function of the Center for the New Economy should it become a reality. The case study format is not the only way, but we also think that the presence of outsiders lends a fresh ingredient to the catalysis. We were happy to have the chance to help.

Suggested Citation:"6 Recommendations." National Research Council. 1999. Lighting the Way: Knowledge Assessment in Prince Edward Island. Washington, DC: The National Academies Press. doi: 10.17226/6413.
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Suggested Citation:"6 Recommendations." National Research Council. 1999. Lighting the Way: Knowledge Assessment in Prince Edward Island. Washington, DC: The National Academies Press. doi: 10.17226/6413.
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Suggested Citation:"6 Recommendations." National Research Council. 1999. Lighting the Way: Knowledge Assessment in Prince Edward Island. Washington, DC: The National Academies Press. doi: 10.17226/6413.
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Suggested Citation:"6 Recommendations." National Research Council. 1999. Lighting the Way: Knowledge Assessment in Prince Edward Island. Washington, DC: The National Academies Press. doi: 10.17226/6413.
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Suggested Citation:"6 Recommendations." National Research Council. 1999. Lighting the Way: Knowledge Assessment in Prince Edward Island. Washington, DC: The National Academies Press. doi: 10.17226/6413.
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Suggested Citation:"6 Recommendations." National Research Council. 1999. Lighting the Way: Knowledge Assessment in Prince Edward Island. Washington, DC: The National Academies Press. doi: 10.17226/6413.
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Suggested Citation:"6 Recommendations." National Research Council. 1999. Lighting the Way: Knowledge Assessment in Prince Edward Island. Washington, DC: The National Academies Press. doi: 10.17226/6413.
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Suggested Citation:"6 Recommendations." National Research Council. 1999. Lighting the Way: Knowledge Assessment in Prince Edward Island. Washington, DC: The National Academies Press. doi: 10.17226/6413.
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Suggested Citation:"6 Recommendations." National Research Council. 1999. Lighting the Way: Knowledge Assessment in Prince Edward Island. Washington, DC: The National Academies Press. doi: 10.17226/6413.
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Suggested Citation:"6 Recommendations." National Research Council. 1999. Lighting the Way: Knowledge Assessment in Prince Edward Island. Washington, DC: The National Academies Press. doi: 10.17226/6413.
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Suggested Citation:"6 Recommendations." National Research Council. 1999. Lighting the Way: Knowledge Assessment in Prince Edward Island. Washington, DC: The National Academies Press. doi: 10.17226/6413.
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Suggested Citation:"6 Recommendations." National Research Council. 1999. Lighting the Way: Knowledge Assessment in Prince Edward Island. Washington, DC: The National Academies Press. doi: 10.17226/6413.
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Suggested Citation:"6 Recommendations." National Research Council. 1999. Lighting the Way: Knowledge Assessment in Prince Edward Island. Washington, DC: The National Academies Press. doi: 10.17226/6413.
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Suggested Citation:"6 Recommendations." National Research Council. 1999. Lighting the Way: Knowledge Assessment in Prince Edward Island. Washington, DC: The National Academies Press. doi: 10.17226/6413.
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Suggested Citation:"6 Recommendations." National Research Council. 1999. Lighting the Way: Knowledge Assessment in Prince Edward Island. Washington, DC: The National Academies Press. doi: 10.17226/6413.
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Suggested Citation:"6 Recommendations." National Research Council. 1999. Lighting the Way: Knowledge Assessment in Prince Edward Island. Washington, DC: The National Academies Press. doi: 10.17226/6413.
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