Quebec at the crossroads: the recession as Charest’s Odyssey

Many Quebeckers remain fixated on the economic problems in the United States and their spillover effect into Canada, notably the potential bankruptcy of one or more of the Big Three US automakers and the devastation this would wreak on central Canadian manufacturing.  Quebeckers should be paying more attention to what our newly re-elected Liberal government plans to do to get us through the recession, given that they live here, not in Ontario or the US.  Will Charest avoid the expensive and ill-conceived industrial engineering policies of past governments, or will Quebec’s special interest groups like its unions and the aerospace industry suck away funds from more worthy projects?  To learn more about what he may do, we have to examine Charest’s mindset in conjunction with his policy platform from the recently-concluded election.

Charest the Emboldened

As the first premier to win three elections since Duplessis, Charest may be reflecting on his first two mandates with an eye to what he can accomplish in his third, regardless of whether or not he intends to seek a fourth mandate later on.  In his 2003 election, he campaigned on a platform to re-make Quebec, to slaughter the sacred cows of our over-coddling social safety network that encouraged structural employment and under-employment for so many.  As well, he wanted to end the heavy handed intervention in our private-sector economy via state-directed funds like the SGF, the CDPQ (our pension fund) and even the labor-sector investment arm, the Fonds des travailleurs du Quebec.

While he succeeded in reducing taxes, his confrontational style of governing and thinly-experienced front bench of ministers did not create the climate necessary for structural reform to Quebec’s social programs and industrial policy.  While the venture capital arms and state pension funds are operating along more market-oriented principles, there is a lot more to be done if we are to avoid the day of reckoning foreseen by Lucien Bouchard and his Lucides.  In his brief second minority-mandate, he reverted to a cohabitation model of governing that avoided confrontation, allowing his popularity to recover to achieve a majority in the National Assembly on a very short list of substantive accomplishments.  Politically, this would be considered a success, but it is not in our province’s long-term interests to avoid the structural changes that would result in socio-political discord in the short term.

A recession provides a fantastic opportunity to make changes that upset the status quo, since industries that have been heavily subsidized in the past may not receive the same largesse in the future because funds are desperately needed elsewhere to sustain consumption, like expanding unemployment insurance payments.  A case in point would be the aerospace industry: Bombardier received a generous “loan” package from the federal and provincial governments to launch the C Series, largely because governments around the world habitually do the same thing to support their own airplane manufacturers.  It is unlikely that the public would tolerate the same kind of package today, while many traditional manufacturers could have their jobs supported at a fraction of the cost of a single aerospace job.  If the same sentiment exists among the publics in other aircraft producing nations, then now is the time to negotiate an international subsidization withdrawal program for the aircraft industry. 

Let’s hope that Charest feels emboldened to make the tough decisions that eluded him in his first mandate.  Here is a short list of what he could do to steer Quebec through the recession and to a better future.

Infrastructure:  the PLQ platform from the election already promised a boost in the five-year plan from $37 billion to $41 billion, some of which has been targeted to specific projects in Montreal like our hospitals, public transport and highways.  Indeed, this program has already been in place for a year and was perfectly timed to help Quebec’s construction industry shift more human resources away from a slowing homebuilding market to municipal and institutional infrastructure.  They key here will be the nature of the projects chosen for fast-tracking; not only do they have to be ready to go now, but they also have to represent top value for Quebeckers.  Otherwise, we will end up blowing billions on quick-build projects that no one really needs that cost money to maintain once they are completed.  Charest has made a good start on this initiative; let’s hope he and his cabinet make the right choices for the next 18 months to two years.

Industrial policy:  Quebec has a miserable track record of showering money on losers or giving money to firms that did not need it in the first place.  Readers will remember fiascos like Sidbec-Dosco, the Hyundai auto plant in Bromont, or, more recently, Bernard Landry’s showering of $100 million on CGI just to move offices to a new downtown high-tech campus.  Charest must resist spending money on yesterday’s losers and instead create the economic incentives to allow small and mid-size businesses to train and recruit new personnel and innovate to create world-class products.  In the PLQ platform, there are interesting initiatives to stimulate invention and promote new patents with a ten-year fiscal holiday. 

More troubling is the intent to spend another $400 million in loan guarantees to the forestry industry to help it restructure, on top of the $1.4 billion previously committed to the sector.  There is no way to artificially create demand for wood products as long as the US housing industry is in freefall; firms that receive a reprieve from the reaper today may not survive long enough to see an uptick in new home construction without another round of expensive taxpayer-funded subsidization.  On a cost per employee basis, this money would be better spent on fostering the service industries of tomorrow rather than the traditional manufacturing of the past.  However, there will be little debate on this issue since all three parties in the house need rural ridings where these plants are located.  If we are going to spend a couple of billion on the forestry industry, then we should be brave and really transform it; let the older plants with high structural costs close, while allowing newer plants to take their place to exploit the same tracts of forest.  Quebec should study how the BC forestry industry changed its product mix to provide high value lumber to Japan, getting much more for their wood than was possible with standard US dimensional lumber products.

Le Plan Nord:  this is the kind of vision that Quebec needs – we have great riches in the north, but there has to be a push to develop them.  The initiative involves hydroelectric power (several projects are already underway) mining for nickel, copper, gold and silver, and even solar and wind alternative energy.  The trick will be negotiating with the native peoples of northern Quebec – few have forgotten Bourassa’s failure to secure the rights to proceed with the Great Whale hydroelectric project in the 1990’s, which would have been on a much grander scale than the additional 3500 MW of power projects that have been proposed on top of the 4500 MW of new hydroelectric power already underway.  Charest is not off to a good start; Geoff Kelly would have been a much better choice to deal with Quebec’s native peoples, but there were already too many Anglo Montrealers around the table to carve out a place for him.

 Freer-trade initiatives:  Quebec used to try hard to protect its specialized laborers in the construction industry by impeding inter-provincial mobility for tradespeople.  Not anymore: now Quebec wants to take the lead on worker mobility across the country and is working closely with Ontario to create a more fluid labour market.  Quebec also wants the federal government to pursue a free-trade agreement with the European community, but this is more showmanship than anything else; the EU has created a plethora of non-tariff trade barriers with technical requirements that many North-American goods cannot meet.  Well, we do have an agreement with France to recognize each other’s professional qualifications, so we can have medical personnel exchanges, but not necessarily job creation.  The worker mobility initiative is valuable in the long run, but will not alleviate increasing unemployment during the current recession.

Quebec has made a good start

In a way, Quebec is fortunate that it does not have Ontario’s auto industry.  Quebec manufacturing will have its problems, but it is not facing the calamity of its western neighbor.  Quebec need not commit to excessive deficit spending to stimulate its economy; Prime Minister Harper will handle the fiscal stimulus.  Quebec has to make better choices that it has in the past, and not be afraid to restructure our social benefits at the same time, with more emphasis on linking income support to retraining and continuing education.  Charest has made a better start than the last three premiers in dealing with an economic downturn; we can only hope that he looks back on his promises from the 2003 campaign when he considers what he legacy will be, and finds the strength within to become a transformational leader rather than a transactional manager.