How Québec became a North American Region State

How Québec became a North American Region State

By Jean-François Lisée

Guest researcher

Centre d’Etudes et de Recherches Internationales, IEP Paris

Researcher, Centre de recherche sur les politiques et le développement social, Montréal[1]

April 2003

 

Introduction

Our view of the evolution of Québec in the last decade is generally obscured by three elements.  First, from the failed attempt at constitutional reform, called the Meech agreement of 1990, through two referendums, to the resignation of Premier Lucien Bouchard in early 2001, it seems that scarcely anything but political debate has gone on in the province. Second, Québec policies towards the rest of the world and Ottawa’s response to it may seem wholly attributable not to real structural evolution, but to political posturing aimed at the next independence showdown.  Third, while looking at Québec’s vital signs, the inevitable and quite relevant comparison with Ontario usually puts it at a disadvantage. As though sitting besides a giant necessarily meant that you are a dwarf.

But beyond these elements and intertwined with them, Québec’s transformations during the nineties, mostly coming to fruition in the second half of the decade, deserve to be weighted on their merits. As Michael Keating notes in looking at the behaviour of nationless states in the new context of globalisation, it is true that nationalism predates and colours their actions and that the opening of markets provides a new opportunity for nationalistic policies (Keating, 2003). The combination of nationalist will and of opening markets compounds what is, nonetheless, real and measurable change.

The view of this text is that, in the last decade, Québec’s economic and political elite, with strong popular support, wanted Québec to become a region state – that is to act increasingly as a specific entity whether or not it became independent from Canada; that it needed to become a region state in order to achieve optimal growth; and that it was further pushed into becoming one by the peculiar political context.

Foreshadowing: FTA and GST

Québec’s elite made two macroeconomic decisions in the late 80’s and early 90’s that prepared the transformations to come and gave a first signal of their awareness of Québec’s economic interest in becoming a region state, well beyond sovereignists’ (the Québec term for pro-independence forces) circles.

The first was Québec’s bipartisan support for the Free Trade Agreement (FTA) between Canada and the US in 1988. (The expansion to Mexico, through the North American FTA, or NAFTA, would come in 1993). Most of Québec’s exports were destined to the rest of Canada, first and foremost Ontario. By then the business class was primarily Francophone.  Diversifying exports to the US, across the political, legal and linguistic US border should have been a more frightening challenge for them, and their electorate, than for their Ontario counterparts. As pointed out by Canadian economist John Helliwell, “two countries [or in this case a region and a neighbouring country] sharing a language are estimated to have two-way trade flows more than 50 per cent larger than those between otherwise similar countries” (Helliwell, 1998: 45). That is the standard he found for OECD countries. Which means that, given a similar starting point, English-speaking Ontario should do 50 per cent better than French-speaking Québec at trading with the US. In a separate paper, Helliwell has also argued that, in 1990, based on a gravity model developed by John McCallum, Québec’s reliance on interprovincial trade over trade with US States of comparable size and distance was even greater than that of other provinces. McCallum had shown that intensity of province-to-province trade was, on average, 21 times greater than that between province and state.  Helliwell found that, for Québec, it was 26 times greater. “National borders matter even more for Québec than for the rest of Canada, he wrote” (Helliwell, 1985: 1) [2].

Yet Québec’s new entrepreneurs were enthusiastic in favouring free trade with the US. Politically, then Premier René Lévesque, the founder of the modern independence movement, the Parti Québécois (PQ), had given a first positive signal in a speech given in the US in 1984. Later, a risk-averse and pro-Canadian Robert Bourassa, becoming Premier, joined the movement.  In the election of 1988, Québec was the only province, with Alberta, to give a majority of votes to Brian Mulroney, thus bringing the FTA into place against the wishes of a majority of English-Canadian voters.

Then came the Goods and Services Tax (GST) a value-added tax introduced by the federal government to replace the old federal manufacturing tax.  The Québec liberal government, supported by Jacques Parizeau’s PQ opposition, and the Québec business class, saw the comparative advantage in taking the sales taxes out of the structure of the manufactured product, thus lowering its cost when it crossed the border.  They immediately harmonised the provincial Québec sales tax on the same principle to further lower the cost of exported goods.  There was some loss of short term revenue – about 2 billion Canadian dollars – but it was seen as a worthy investment in the expansion of exports, and as a comparative advantage gained on Ontario, where the federal GST was furiously opposed, and where a similar provincial tax adjustment was – and still is 15 years hence – politically out of the question.

International exports:  time of harvest

And expansion came. The decade started with Québec exports to the rest of Canada exceeding its foreign exports.  When the decade closed, Québec was selling almost twice as much abroad than in Canada. By 2000, Québec was the US’s sixth most important trading partner, overtaking the UK, France, Germany, Brazil, or Russia.

 

This amounts to a commercial “decanadianisation” of Québec. But here, interprovincial comparisons are in order. We have data that span the decade, from the previous economic peak, 1989, to what we now know to be the last peak, that of 2000. First, one has to note that Canada as a whole went from a position of near equilibrium between interprovincial trade and external exports in 1989, to a position in 2000 where international exports became twice as important as interprovincial exchanges. It is an extraordinary event in and of itself.

Table 1. International Trade Trends, Provincial (or Canadian) average,

Ontario and Québec, 1989-2000

Provincial average

Ontario

Québec

Growth of exports to the world

180%

192%

190%

Growth of exports to the world/per cap

152% (Canada)

153%

173%

Ratio 89/00 of World exports/GDP

23% / 40%

29% / 54%

21% / 41%

Growth of World exports/GDP Ratio

74%

90%

94%

Ratio 89/99 World exports/ROC exports

1.2 / 1.9

1.3 / 2.9

0.9 / 2.1

Growth of World exp/ROC exp Ratio

85%

128%

124%

What is striking about Ontario and Québec is the growth of their international exports in the decade. Compared to the very high provincial average (which is the average of the growth of the 10 provinces) of 180 per cent, Québec reached 190 per cent, Ontario 192 per cent. If corrected for population growth, Québec’s performance surpasses that of Ontario: 173 per cent over Ontario’s 153 per cent. Furthermore, the change in both provinces’ international trade ratio, relative to their GDP, is unmatched. Again over the very high provincial average of 74 per cent, Québec’s grew by 94 per cent over the decade, Ontario’s by 90 per cent[3]. Which means that Québec overcame both Helliwell’s common OECD language border effect, that should have imposed on it a substantial 50 per cent handicap compared to Ontario (more on this later), and its heretofore overreliance on interprovincial trade.

Both provinces most clearly stand out in terms of redeployment of exports.  Looking at the importance of international relative to domestic exports, as Ontario scholar Thomas Courchene does to measure, among other variables, the surge of a “region state” (Courchene and Telmer, 1998), it must be said that Newfoundland and British Columbia were at the top of the chart in 1989, and remain in the top three in 1999. That demonstrates how this criteria alone cannot set the bar for what constitutes a region state. Moreover the decade didn’t transform Newfoundland and BC. These provinces increased their international over domestic ratio by respectively 18 per cent and 13 per cent, far lower than the provincial average of 85 per cent. Ontario and Québec changed theirs by over 120 per cent: 128 per cent for Ontario, 124 per cent for Québec, both with diversified economies and exports, followed by Alberta with 123 per cent, with a late decade surge of energy exports. Québec went from a position below the provincial average in 1989, to a position above the provincial average in 2000.

If we were to compare Ontario and Québec’s export ratios to other states, but by adding their interprovincial and international exports, it would give for 1998 the listing showed in Table 2.

Table 2. International and interprovincial exports/GDP, Québec and Ontario

compared to major OECD countries international exports/GDP ratios, 1998

 

  1. Luxembourg     91%                 Next G7 countries :
  2. Ireland              80%                 18. Germany     29%
  3. Belgium            75%                 21. UK              27%
  4. ONTARIO         70%                 22. Italy            26%
  5. QUEBEC          57%                 23. France        26%
  6. Netherlands      55%                 28. USA           11%
  7. Austria             44%                 29. Japan         11%
  8. CANADA          43%

Volume of trade tells only part of the story, although a structurally essential one. For Québec, content of exports changed drastically. Raw materials exports have been overtaken by aerospace production and telecommunications. Québec has moved from pulp and paper and aluminium (remaining a world leader there) to building and selling half of all the civilian helicopters in the world. In 2000, 40 per cent of Québec’s exports were composed of electronic and transportation equipment. Québec is a net importer of raw material, to a greater extent than Ontario.

Interestingly, the structure of intra-industrial trade sets Québec apart from its Canadian neighbours, and this could be viewed as a marker for region state status. Montreal economist Pierre-Paul Proulx has shown that the intra-industrial commerce that Ontario and the rest of Canada have with the US outweighs their intra-industrial commerce with the rest of the world. In Quebec, the reverse is true, largely thanks to Québec’s greater European connection. “The history and role of Montreal and of Quebec as a transit point with Europe persists”, he writes (Proulx, 1999).

The decanadianisation of cross-border investment

If the flow of goods in Québec became more American than Canadian in the aggregate in the 1990s, what can be said about the flow of cross-border investment? Data on investment is notoriously hard to break down into foreign and interprovincial private investment. But relying on the set of acquisition figures compiled by Crosbie & Co for its Mergers & Acquisitions in Canada series, we see that over the 94-99 period for which provincial data was compiled[4], the North-South flow was stronger than the East-West flow. It was true for all of Canada, but truer still for Québec.

 

Though it accounts for 22 per cent of Canada’s GDP, Québec’s share of US acquisitions in Canada for the period reached 33 per cent. Québec’s share of Canadian acquisitions in the US reached a staggering 49 per cent. In may be partly due to the fact that Québec corporations invested in the US 82 per cent of the 63 billion dollars worth of acquisition they made in these five years North of Mexico. Also, in the same period, US acquisitions in Québec were almost three times as important as those from the rest of Canada (27 billion instead of 10), a gap growing over time.  This was clearly another important force in the decanadianisation of the Québec economy[5].

Québec’s strategy 1996-2001

Now that the score appears clearly, we can ask how much of it is attributable to the behaviour of the actors, seen here as the Québec government and business elite, as well as the Canadian economic and political environment. Causal effect cannot be drawn with precision, and these changes are more deeply rooted than in policy decisions taken in the latter part of the 90s. Yet what emerges is the striking convergence between the decisions of the actors – those already mentioned on the FTA and the GST at the outset of the decade and those that we will now review – and the economic results at hand.

By mid-decade, when the structural changes in trade and investment patterns were not yet entirely visible, Québec acted in the region state mode forcefully. It did so with the very active participation of a business class that had not been a member of the Yes committee in the 1995 referendum, that didn’t wish for independence but very fervently wanted an economic revival. The participation of leaders of industry in premier Bouchard’s economic summits of 1996, sometimes over the objections of federal ministers, further cemented the bond between them and the Bouchard government.

1) If  you build  it…

Québec’s action was twofold.  First, on the fiscal front, the six budgets from 1996 to 2001 would change the fiscal rules for investors. So much so that the general tax burden on businesses as a whole – meaning income, capital, sales, payroll and local taxes – in Québec is lower than Ontario’s. The Québec Finance Department has computed that, in 2001, had the Ontario tax structure been in place in Québec, businesses would have paid 1.4 billion $ more (Lecours, 2002). The burden has become markedly more favourable specifically for investors, foreign and domestic.  Québec matched its Canadian neighbours, then its American neighbours and then most Ireland’s fiscal package for investor attractiveness. By 2001, a foreign or domestic investor would have needed an extremely inept accountant to pay any provincial taxes in Québec in the first five to ten years following the investment, including parts of the payroll tax (Price Waterhouse, 2001) [6]. It is a clear example of the “race to the bottom” phenomenon, albeit a targeted one. Furthermore, studies by international consultant KPMG have shown that Montreal’s overall costs are consistently lower than in any other major city in Europe or North America (KPMG, 1999 and 2002)  — something confirmed by similar KPMG studies proudly shown on Ontario’s and Alberta’s official websites[7]. Québec contributed to keep these costs low by freezing the cost of electricity from 1998 and until 2004.

In terms of personal income tax, Québec’s provincial burden is greater than anywhere in the continent. This measure is a poor, in fact misleading way to assess overall real costs for individuals, since the difference is returned to tax payers in the form of government services. In 2001, if the Ontario tax structure had been in place in Québec, personal income tax would have been lowered by an impressive 4.2 billion $. Yet, when one adds up Québec public services not available in Ontario, one rapidly runs a tab that exceeds this amount[8]. An Alberta-sponsored KPMG study (KPMG, 2001) shows that, in 2001, the total cost of living, including taxes, in Montreal is lower than in Toronto or Vancouver, for all cases studied (revenues from 40 to 150 000 a year). The Montrealer’s standard of living is greater than that of the Torontonian at equal level of revenues. But revenue in Québec has historically been lower, and now stands at 9 to 14 per cent less than in Ontario, whether one considers or not as a loss the fact that Quebeckers work on average one hour less a week than Ontarians, and take more vacations. When this correction is applied, as seen in Table 3, Montrealers still enjoy a higher living standard than Torontonians.

 

Table 3.  Compared cost of living Montreal/Toronto

Costs and taxation study, KPMG/Alberta 2001

Household

Toronto

Montréal

Equal  revenue

Montréal Revenue -14%

Montréal Revenue -9%

40 000 $ single

100

– 9%

Idem

– 4%

60 000 $ couple, no children

100

– 11%

– 2%

– 5%

80 000 $ couple,

2 children

100

– 10%

– 1%

– 5%

100 000 $ couple,

2 children

100

– 12%

– 4%

– 7%

150 000 $ couple,

2 children

100

– 8%

– 1%

– 4%

A similar 1998 Québec study had shown that, at equal levels of revenue, this was true even at 250 000 a year. It expanded the comparison to the 14 largest North American metropolitan areas. Montreal ranked first for families up to 50 000 a year, at average for other families all the way up the scale (250 000), at average also for single persons up to 75 000 a year, never worst than eleventh (Finances/KPMG, 1998).

Still, the Québec government has moved to reduce tax rates in the 1996-2002 period but, unable to match Ontario or the US on the overall rates, it there again targeted both foreign investors and the local high-tech industry by creating a second, specific and totally competitive regime of personal income tax for foreign staff moving to Québec in the new economy, some financial sectors, and some university research. The rule is simple: no provincial income tax for five years.

So to take Philip Cooke’s terms, Québec as a region state is trying to take both the low road and the high road to success (Cooke, 1999):

q  low road by benefiting from low costs and targeted low corporate and income taxes for investors and foreign staff.

q  High road by retaining the needed overall revenue to invest in education on a higher per capita basis than its neighbours or the OECD (Education, 2000) and by maintaining social transfers high enough to: generate a Gini index that shows less income inequality than anywhere in the continent (Wolfson and Murphy, 2000), foster a social environment where the poverty rate is lower than its neighbours (Lanctôt and Fréchette, 2002), and implement a family and children’s agenda that is unmatched (Jenson, 2002).

Overall from Fiscal Year 1995/96 to 2000/01, Québec’s own-source revenue grew by 39 per cent (Ontario 41 per cent) and its program spending grew by 13.7 per cent (Ontario 5.4 per cent). In a nutshell, Québec made itself fiscally competitive to investors without losing its social-democratic soul.

 

2) … they won’t necessarily come

The second front of Québec’s action was to actively seek investors. To put it simply, the Québec government does not think that “if we build it – the fiscally competitive house –, they will come”. Given the linguistic, cultural, political uniqueness of the place – in an American context where this level of difference is not viewed positively – Québec rightly feels it needs to put resources, first  “to build it”, and then put more resources into bringing the client in.  Clearly, it takes more energy and time to explain Québec’s distinctiveness in the US than, let’s say, Ontario or BC’s comparative advantages. Québec leaders intuitively came to the conclusions reached by Helliwell and Jean-Philippe Platteau, for whom absence of shared language, values and institutions are likely to increase the costs of making and enforcing contracts (Helliwell, 1998:45), including of course Foreign Direct Investment.

There has always been a Toronto-Montreal rivalry but the race to US markets in the nineties was not antagonistic – there was enough potential growth for everybody. And the fact that both regions are represented by a traditional federal state is not usually an impediment to the regions selling abroad.  Though I have witnessed, during a business venture in the Philippines of all premiers and the PM (trips dubbed “Team Canada”), the Prime minister of Canada aggressively promoting to local economic leaders Canada’s nuclear technology – primarily Ontario-based – and badmouthing oil as an unreliable product.  Ontario Premier Mike Harris might have been glad, but Alberta Premier Ralph Klein, also in the room, was showing no signs of pleasure.  Québec Premier Bouchard, seated next to the Prime minister as protocol dictates, whispered in his ear: “Alberta”.  The Prime minister got the hint and said: “yes, yes, Alberta, they have oil. But they don’t mind, they are rich!” No wonder provincial leaders sometimes like to make their own trade trips.

But in terms of attracting investment and creating a distinctive image, region states are of course on their own. The Québec and Ontario governments set out their marketing strategies for the US at about the same time, in the mid-nineties. Reportedly, an Ontario study had shown that among those Americans who did not think Ontario was a county South of Los Angeles (one such county bears the same name), many believed it was a socialist state within Canada. (The center-left New Democratic Party had been in power in the early nineties, bringing catastrophic results).  This may not have been the exact wording of the study, but it how it was conveyed by Premier Harris’ office.  Ontario acted decisively, both internally and externally, to make itself more attractive to US investors, implementing across the board fiscal measures that would make it more competitive than its Canadian neighbours – at least in the average — and, as Courchene points out, more than its immediate US neighbours.

Québec’s task was even greater.  A report tabled at a major economic summit in 1996 demonstrated that, in the mind of American economic decision-makers, Montreal had somehow fallen off the list of relevant North American metropolises in technology, education, science and the like.  Site locators, essential agents for investment, had all but forgotten Québec’s existence. In the wake of the 1995 referendum on independence, Québec’s press coverage in the US was dismal. In terms of the economy and the vitality of Montreal, the coverage was way off the mark, and not only in the US press.  A telling headline, on a story documenting the absence of any sign of divestment or significant level of departure within Anglo-Montrealers, was seen in the Montreal Gazette in July 1996. It read: “No exodus, yet”

In short order, between 1996 and 1998, the Québec government expanded its investment recruitment services by an order of magnitude. A revamped agency, Investissement-Québec, was formed and would soon win awards from American site locator publications. The Societé Générale de Financement was also reengineered to become much more active in seeking foreign investments thanks to its ability to take an important minority share in the investments.  The combined effect on site locators, for instance, was significant.  While Québec was and still is not spontaneously put on the list of preferred North-American sites for a potential investment, when it gets on, it very frequently gets right to the short list[9].

Québec made an aggressive effort of marketing, the Premier travelling to 9 American cities with the leaders of Québec’s business class in tow, making measurable headway in changing perceptions of economic and political decision makers. With these “Mission Québec” or alone, he went to the US about 4 times a year, meeting governors, investors, editorial boards.  This effort was to know a high point in September of 2001 with the opening of a “Québec season” in New York, a 15 million dollars multifaceted initiative to drive the point that a new Québec has arrived. Something the last and most influential interpreter of Québec reality in the American media, Mordecai Richler, had not entirely conveyed. The Québec season, to be unveiled on September 12, has been postponed for obvious reasons, yet the positive coverage that Montréal and Québec City have had since 1998 in the US and UK press in general, and the economic press in particular, is in stark contrast with that of 1995[10].

Ottawa and the ROC : showing the way

If the Québec elite clearly worked at making Québec a region state in the latter part of the nineties, if the American market and American investors provided the opportunity to redeploy the province’s economic activity North-South rather than East-West, the federal government and the Canadian economy also played a part in these changes.

The internal trade picture somewhat encouraged Québec to find growth abroad.  Over the decade, interprovincial exports in Canada grew by 40 per cent in the aggregate, by 55 per cent in provincial average. For Québec ? By a smaller margin, of 30 per cent, with Ontario at 28 per cent.  Of all Canadian provinces in the decade, Québec and Ontario have had the weakest growth in interprovincial exports. Over the decade, this meant that, for Québec and Ontario somewhat more than for the rest of Canada, economic growth laid primarily outside Canada’s borders.

On the political front, it was soon understood that the task of promoting Québec as a good investment venue in the US would be a lonelier affair than could otherwise be expected. In the post-referendum period, Canadian diplomats in the US sometimes actually fuelled the negative perception of Montreal and Québec in briefing to investors. The example came from up high. The Prime minister made a disparaging remark about Montreal’s economy during a major speech at the New York Economic club. The Premier of Ontario, Mike Harris, also did his share. In an interview given to the Sun newspaper chain in early 1998 – at a time when Montreal’s economy was clearly improving – he said: “It’s tough to go to Montreal at rush hour and see no rush hour”. “Montreal was a great city, he added, it is not now” (La Presse, 1998). He was reflecting the very dismissive tone of the Toronto economic press about Québec and Montreal in these years.

The coolness was somewhat reciprocated. Québec promotional efforts were important in the US, as we have seen, and other important missions involving the Premier and representatives of the Québec elite were organised in China, Mexico, Argentina, Chile, France and Catalonia. Yet there was scarcely any effort from Québec to try and change perceptions, or attract investments, in the rest of Canada. Premier Bouchard travelled there almost exclusively for Premier’s political conferences.  Organising a “Mission Québec” to Toronto or Vancouver was sometimes contemplated, but the certainty that any positive economic message would be overwhelmed by the political debate on sovereignty made the endeavour not worth the investment.

This is an interesting twist where real structural change and politics combine towards a same end.  Québec was becoming a region state mainly for economic reasons.  But the sovereignist premier, Lucien Bouchard, had made financial and economic growth the linchpin of his pro-independence policy. In what was then believed to be a short interval until the next referendum, Ottawa’s main line of public argument at the time – from 1996 to 1998 – was that political instability was hurting Québec’s economy. (A pervasive instinctive conclusion that studies cannot confirm (Lavoie and al, 2001). An upturn would ruin this argument, and it was indeed ruined when the upturn became undeniable starting in 1998.  For a time, then, federal discourse changed. It was said that the only things that worked in the Québec economy were those who benefited from federal policy: aerospace, pharmaceuticals. The surge of all segments of the Québec economy gave a very short life-span to that version of events.

It would be interesting to document how much Ottawa did, if anything, to prevent the upturn, a politically difficult wire-act to perform. The federal government was in the process of reasserting itself as an indispensable government in the life of Quebeckers, and wanted to be seen as a direct contributor to their wellbeing, especially in the Francophone regions politically dominated by the sovereignists. At a time of reduced spending, it did that primarily by a massive effort of branding its existing contributions, and targeting dwindling resources in those activities with most visibility.  Yet it refused to participate in some high-profile big-ticket items, leaving the entire tab to the Québec government despite strong pressure from Montreal’s business class. The expansion of Montreal’s Convention Centre and the rehabilitation of the failed Mirabel international airport (a purely federal blunder), are the main examples. The decision of Prime minister Jean Chrétien, a Quebecker, to approve against previous commitments the choice of a direct Nova-Scotia/USA route for the new gas pipeline of Sable Island against the Nova-Scotia/New-Brunswick/Québec/Ontario proposal that would have made more national sense and would have benefited Québec, was also seen as uncharacteristic of what a “favourite son” in power would do. The federal attempt to favour Alberta-based and bankruptcy-bound Canadian airlines over Montreal’s sounder (at the time) Air Canada in the necessary restructuring of the airline industry was also a case in point. There is simply not a single instance, during that period, when, given a discretionary choice between Québec and another province, the Chrétien government made a major decision favourable to the Québec economy, despite the presence of Quebeckers at almost all the economic portfolios: Prime minister, minister of Finance, President of the Treasury board.

These big ticket items are marginal in the full federal presence in the Québec economy but they gave a general tone that Ottawa was not consistently “onside” with the Québec elite’s efforts to lift the economy up. Federal investment was also experiencing a period of contraction, due to deficit cutting operations, which could not help but fuel this impression. From its 1994 high point to the 1998 low point, federal capital investment – Ottawa’s most direct input – was reduced, overall, by 31 per cent in Canada.  In Ontario, the reduction was of 19 per cent. In Québec, the reduction was greater, of 33 per cent, going from 834 million $ in 1994 to 560 in 1998.  This contributed to create a greater federal vacuum in Québec than in the ROC and in Ontario in particular.

There is no question that, if it suffers from federal underinvestment on the productive side of the ledger, Québec was a net gainer in the remedial aspect of the federal presence: equalisation payments from richer to poorer provinces, redistributive characteristics of the Canada Health and Social Transfer (CHST, the main conduit for federal funding of provincial social programs) and of unemployment insurance (UI). But even in these fields Ottawa moved to rein-in the financial flow to Québec, over and above the severe across-the-board cuts in CHST funding of that period. Québec economist Pierre Fortin estimates that successive reforms of UI, by shifting a greater number of unemployed to provincial social assistance, added a burden of 845 million $ to the Québec treasury for the 1990-1997 period, and 100 million for each of the succeeding years (Fortin, 1997). In early 1999, a surprise-CHST reform wiped-out Québec’s redistributive advantage therein (by folding its social assistance component on a overall per capita basis instead of a per beneficiary basis, thus compounding the UI reform damage), and reduced Quebec’s expected share of new funding by 330 million for that year alone, by 1,8 billion $ over five years. This structural reform, long advocated by Ontario and Alberta who got the lion’s share of the new funding, coincided with a greater than expected equalisation payment to Québec, thus the timing. Both reforms also made substantial damage in the Atlantic provinces, particularly Newfoundland. This was added to previous federal discretionary financial decisions aimed at making life harder to the Bouchard government, then struggling to curtail its own deficit without alienating its referendum allies in the union and social movement.[11]

For all these reasons, the Canadian environment in the late nineties was conducive to Québec reducing its reliance on the Canadian market for commercial growth, its reliance to Canadian diplomacy, political leadership and business media for help in attracting investment, its reliance on the federal government for productive investment, budgetary help and remedial measures. It contributed instead in comforting Québec’s inclination to look to its own resources for strength and direction, and to look outside Canada for growth, opportunity and allies.


The Québec economy at the turn of the century


Trade and investment trends show how Québec modified its relationship with its neighbours during the nineties. What of the impact of these changes on the whole of the Québec economy ? Pierre Fortin has demonstrated that Québec has been closing the historic gap with Ontario, on a per capita basis, since 1960 (Fortin: 2002). The most recent data buttress his research. Economic growth, from the 1989  to 2000 peaks, shows Ontario’s GDP performing better, at 34 per cent growth, than Québec, at 28 per cent (See Figure 4).  Adjust it for population and you get a different picture: Ontario’s per capita growth at 16 per cent, Québec’s at 19 per cent[12]. Adjusted with the GDP deflator index, real per capita disposable income growth is even more stunning: zero growth (-0,3 per cent) in Ontario, 7,4 per cent growth in Québec. So, clearly, if you are a GDP, you did better in Ontario. On the other hand, if you are a person…

Year by year, in real terms, Quebec’s per capita GDP has overtaken Ontario’s in 2000, 2001, 2002 and predictions show this trend holding at least to 2004. Compared to the Rest of Canada as a whole, Quebec has done better every year since 1998.

Comparisons with OECD states also give a measure of Québec’s progress in this period. Using the OECD’s benchmark of Per capita GDP, adjusted for Purchasing Power Parity in 1995 US$, Figures 5 and 6 track Québec’s progress between 1992 and 2002, relative to other industrialised countries and to the OECD average.

 

 

Québec thus jumps from 17th place to 10th in a decade, a jump surpassed only by Ireland. A recent study by Québec’s Institut de la statistique (Tran, 2001) tracks the surge of Quebec’s competitiveness relative to the OECD average to an important surge in productivity.

What is striking at the turn and in the first years of the century, is how Québec’s GDP has outperformed those of the G7 for the 1997-2002 period, growint at 210% the G7 average in gross terms, at 250% per capita. If one takes only Québec’s neighbours, Canada and the US, the numbers are respectively 110% and 150%. Projections for the next two years show the trend will hold (Lisée, 2003).

This is not to say that Québec is richer than its neighbours. Historically, it has been poorer since statistics are held. This even used to be true relative to the OECD average. Québec is currently closing the gap – and in the case of the OECD expanding its advantage – at a steady pace, as table 4 demonstrates.

 

Table 4. Québec’s GDP compared to the OECD, Canada and USA, 1992-2004

GDP per person and in PPP

1992

1998

2000

2002

2004

Québec/OECD

101%

102%

107%

111%

114%

Québec/Canada

89%

89%

91%

92%

93%

Québec/USA

74%

71%

74%

79%

81%

Sources : 1992-2001 : OECD and  Institut de la Statistique du Québec; Estimates 2002 and  forceastss 2004 : StatsCan, OECD, Bank of Montreal.

As far as the US is concerned, the overall figures shown here give a real measurement of average wealth, but not of median wealth, revenue inequalities having increased immensely in the last 30 years. Recent studies show that the share of after tax revenue hoarded by the top one per cent of earners went from a relatively normal post-war level of 8 per cent in 1973 to a gilded-age 14 per cent in 1998 (Piketty, 2001) and close to 20% in 2003. Granting that the US affluent class is much more affluent than elsewhere, one should note that the 25 per cent of Quebeckers at the bottom of the scale have a higher standard of living than the comparable Canadians and Americans. The yardstick of median work income is more suited to ascertain middle class wealth. Figures for 1997 in PPP showed Québec slightly ahead of Canada in median work income and only 5.5 per cent below the US (Lisée, 2003). GDP having grown faster in Québec than in the US in the years since 1997, with a better wealth distribution, this gap has assuredly narrowed.

One could argue that the transformations we witness are driven solely by the metropolis, Montréal, and not by the whole of Québec. It is true that some regions of Québec did not participate in this surge. But the high level of growth was spread over all of the Montréal metropolitan area, which includes almost half of the population of the province and all or part of five of Québec’s 15 regions. Outside that area, Québec city is now considered by the Conference Board as Canada’s fifth fastest growing local economy, and two regions that border on the US, the Beauce with almost full-employment and the Eastern Townships, have clearly participated in the internationalisation of the Québec economy in the decade.  So if it is undeniable that Montréal has been the locomotive of change, there were secondary engines at play.

Although it is seldom seen as such, Québec has become an economic powerhouse.  Taken alone, its GDP went from being the 23rd in the world in 1976 to the 15th in 2000, and the sixth in the Americas. Compared to G7 countries, its economy now has the highest proportion of high tech production, just after Japan. The outlook seems promising. In the spring of 2001, the Conseil québecois de la science et de la technologie, in a report on innovation (Conseil, 2001), produced a table of 14 indicators that are signs or precursors of innovation – investment in education, R&D spending, technological level of production, proportion of technical personnel, export rate, business financing of university research, patents, output of scientific publications, some others.  It compared Québec’s data with those of the G7.  In 8 of the 14 variables, Québec was in the top three, clearly ahead of Canada as a whole[13]. Only the US fared better overall. Obviously, Ontario would have done very well in this exercise.

These transformations have occurred through Québec’s strengthened linkage to the US economy, for sure, but that was the field on which it could flex its new R&D muscles, built up over 25 years of consistent fiscal cocooning. This, in turn, could not have been possible without the education revolution that brought Québec from the lowest schooling ratio on the continent in 1961 to one of the highest in the western world in the late nineties (Education, 2001).

The language border effect: why it is not there

An essential element in this transformation, difficult to measure in pure economic terms, is what Courchene would call a “locational externality”, an advantage specific to that place and no other. In my view, Québec’s crucial externality is linguistic, and it helps explain why the linguistic border effect found elsewhere in the OECD by Helliwell is not an impediment to Québec’s commercial surge as a region state. In his research, Helliwell finds no trace of this effect for Québec and concludes that the level of French/English bilingualism is sufficient to eliminate this handicap both for province-to-province trade and for province-to-state trade.

This is worth looking into.  If there was no language border effect before the seventies, it is simply because the people then in charge of the economic interface between Québec and the Anglo-American continent were Anglophones. In the sixties, an absolute majority of managers of Québec firms were members of the English-speaking minority (80 per cent of middle-managers, 60 per cent of senior managers) and, most of the time, they worked only in English (Office, 1988; Levine, 1990:181-193)[14]. Today, although Anglophones still enjoy overrepresentation in management (26 per cent in 1988, given 10 per cent of the population), the French-speakers are for the first time in the majority (58 per cent, given 81 per cent of the population), Allophones accounting for the remaining 16 per cent. Thus Francophones are now primarily in charge of the economic interface with Anglo-America. There should have been a concomitant surge of the language border effect, instead of a clearly unimpeded surge of the ratio of exports.

What really emerged was the rise of a new business and managerial class where the language spoken is, to quote American scholar Marc Levine, “a French-dominated bilingualism” (Levine, 2000:366). This has little to do with Canadian linguistic policy. For the record, in Canada outside Québec, decades of effort under the Official Languages Act brought bilingualism there from a paltry 9 per cent in 1951 and 9.4 per cent in 1971 to 10.8 per cent in 1996[15].

Table 5. Québec and ROC linguistic evolution, active population, 1971-1996

 

Québec

Rest of Canada

Bilingual

1971

Bilingual

1996

Bilingual

1971

Bilingual

1996

Total

43%

50%

10%

11%

Francophones

43%

46%

90%

92%

Anglophones

48%

74%

5%

8%

Allophones

41%

60%

5%

7%

Source: Statistics Canada, unique responses only for mother tongue

The transformation is Québec’s very own, and is a cumulative product of schooling, economic flows, migration, and decades of linguistic legislation. In the fifteen years from 1971 to 1996, the proportion of the active population who knows French went from 89 to 96 per cent. The proportion that is bilingual went from 43 to 50 per cent, thanks to a slight progression of bilingualism among Francophones, and a major rise among non-Francophones. In the Montreal metropolitan area, Québec’s predominant economic centre, the level of bilingualism reaches 63 per cent in the active population, and 80 per cent among managers and engineers.

Somewhere between 1971 and 1996 a threshold has been crossed that has prevented the advent of a linguistic border effect, so detrimental elsewhere in the OECD. Bringing about a working population that retains, or in many cases gains, French as a real internal functional language; expanding the use of English as an indispensable interface tool; doing this at a time when the linguistic makeup of the managerial class changes radically: that is the unheralded, bipartisan achievement of 30 years of linguistic experiment in Québec.

There is more. When a majority of skilled Francophones and Anglophones are bilingual and when a majority of allophones speak three languages in a given region, there is a potent locational externality at play. This operational bilingualism enables Québec to provide a unique, real time connection to innovations in both French and English-speaking Europe and the Anglo-American continent. It has effects in intra-industrial trade, as we saw, in research and development, in post-secondary education, in public policy experiments, in culture. Québec has the ability to import, blend and reexport concepts, no outside translation required. In my view, this has only begun to pay off.

Impact on French-Speakers outside Québec

 

It may be too soon to determine what impact Québec’s new found economic strength will have on demolinguistic patterns in Canada. It is probable that, combined with the weakening of the French fact outside Québec, it will further concentrate French-speakers in Québec.

The process is longstanding. In 1971, 88 per cent of Canadians whose home language was French lived in Québec. In 1991, the ratio had grown to 89,9 per cent, then to 90,6 per cent in 2001. Statistics Canada published in December of 2002 its linguistic results from the 2001 census showing a greater number of French-Quebecers leaving Quebec than coming into Quebec for the years 1996-2001. In the previous 1986-1996 period, however, 3 per cent of French-speakers outside Québec had moved to Québec. It has long been the case that there were more heirs of Acadians in Québec than in Acadia, the French-speaking areas of the Maritime Provinces. The recent movement of French-Canadians to Québec is now notable from Ontario to the Québec region opposite Ottawa, the Outaouais. It is interesting to note that the personal income tax differential is not an impediment to that migration.

Federal reports acknowledge that, despite real improvements since the 1970s, services rendered in French outside Québec by the Canadian government have been eroding by about 30 per cent in the last decade. French schools are more numerous than ever before. That is largely thanks to the resilient action of federal courts overcoming the English provinces’ reticence in granting French schools to an ever dwindling number of French-speakers. Yet recent reports show that 44 per cent of French-speaking children outside Québec are not enrolled in French schools by their parents.

We now have a sufficiently long timeline to conclude that assimilation rates of French speakers outside Québec have not been reduced down by the very real and politically courageous Trudeau-era effort to make French a normal language all across the country. In 1971, at the outset of the Trudeau effort, the rate of assimilation was of 27 per cent per generation. In 2001, after more than 30 years of official bilingualism, it reached 36 per cent. If one excludes the French region of Acadia in New Brunswick, where lives a strong French community, the rate of assimilation is 46 per cent.  This means that, outside Québec and Acadia, each generation of French-speakers will be half the size of the previous one. English-Canada is thus in the process of successfully assimilating it’s heretofore most important minority.

 

Outside Québec, among the quarter of Canadians who do not have English as mother tongue, Chinese-speakers represent 15 per cent to French-Speakers’ 17 per cent. If recent trend holds, Chinese-speakers will become the second language group in importance this year (2003) or next. This is a historic event that will put an enormous strain on the politics of language in Canada. In British Columbia, minority languages other than French are spoken by 15 times more people than there are French speakers. It will become hard for the Ottawa government to sustain policies whereby a French-speaker, or an English-speaker knowing French, has preference in hiring in the Federal government, or where a French-speaker can get a criminal trial in his language, and not a Chinese-speaker[16].

These facts and figures are of course in sharp contrast with the image of a functioning bilingual country projected in the world by the Canadian government and its diplomacy, or by the simple fact of having had a string of Québec-born Prime ministers over the past 30 years. The most striking contrarian statistic is that the proportion of Canadians outside Québec who can carry a meaningful conversation in French is somewhat smaller now than in the 1950s. It is as though the Canadian government is reduced to presenting the preview of a bilingual country, without ever being able to produce the movie

Extraterritoriality : border half-heartedness

An important feature of region states is extraterritoriality. The internationalisation of the region states’ activity should translate in some cross-border political strength, as seen in some European cases. In the late nineties, Québec has made efforts in that direction, for instance by becoming a member of the Great Lakes Governors’ Conference, with Ontario following suit, as well as investing more energy in the yearly meeting of the New England Governors and Eastern Canadian Premiers.

Having participated in the planning of eight of these meetings, I can report that, apart from some minor goodwill programs, and the long-established management of Great Lakes’ water intake, very little power is being held, exercised, or clearly coveted by these bodies. Québec’s willingness, for instance, to more clearly identify the remaining border irritants to trade and tourism, then lobby federal governments for quicker action to iron them out, was applauded, then went to sleep in committee. (Though some joint New York/Québec pressure was brought to bear to expedite commercial border crossings in the wake of tightening security after September 11, and the idea of a “Québec/New York” corridor was launched in 2002.)

Three reasons seem to explain the half-heartedness of these bodies and states. First, if it is true that Ontario and Québec now have more stake in their trade to the South than in domestic trade, the same does not apply to US states. Second, US governors and Canadian premiers representing small states or provinces are clearly conscious of their lack of internal leverage, whereas governors from important states have better things to do.  The governor of New York, for instance, scarcely ever attends the Great Lakes Governors’ Conference, as is the case of the governor of Massachusetts for the North-eastern body.  Finally, US states have less decision-making powers than Canadian provinces and little time and resources to pour into external efforts.

It thus seems that, as far as North America is concerned, changes that would facilitate Ontario’s and Québec’s further emergence at region states will primarily have to flow from decisions taken at the centre.  And it is in influencing the centre, or putting new issues on the agenda, that the two provinces can make headway.

There are some signs that, as was the case for Free Trade in the late 1980s, Québec is farther afield in wanting a greater level of continental integration than the rest of Canada. I have no position on the common currency debate – at least until the Euro experiment confirms, mitigates or denies Andrew Rose’s recent studies (Rose, 2000 and Jeffrey and Rose, 2000) showing that existing common currency zones no less than triple trade flows. He computes that adopting the US currency would increase Canada’s trade with the US by 111 per cent relative to its GDP, which would itself grow by 36 per cent. But it is fair to note that now Québec Premier Bernard Landry was the first minister of Finance in Canada to openly ask for a debate on the issue, back in 1997, when it was widely seen as preposterous, if not unpatriotic. It turns out Québec, and Ontario, would have a lot to gain (Beine and Coulombe, 2002).  Dollarisation is now up for debate in the most respectable of Canadian institutions. A poll released in September of 2001 showed a majority of Quebeckers favourable to dollarisation, a majority of other Canadians opposed. Before the September 11 tragedy, Quebeckers were also much more favourable (50 per cent, 36 per cent in the ROC) to a common North American perimeter that would allow for the outright disappearance of the Canada-US border. They were somewhat followed by other Canadians in the aftermath of the terrorist attacks (Canadian Press, 2001 and Picard, 2001)[17].

This is not to say that Québec didn’t play the extraterritoriality game on its own: during the nineties, and more so in the last part of the decade, it brought to maturity some important foreign relationships, with France, Belgium, Catalonia and Bavaria.  It used France’s leverage to get into international political forums to which Canada would refuse it entry.

Yet, looking for markers of region states, and allowing for the fact that Québec-Canada international skirmishes clearly predate the last decade’s structural developments, it is clear that the scope, diversity and intensity of Québec’s extraterritorial relationships exceed any other in Canada. In Europe, Québec has developed economic and political relationships with some of the very subnational entities that emerge as region states[18].

Multiple identities, loyalties, voice and exit

Subnational communities and “stateless nations” like Québec show signs of multiple identities, as Keating notes. This is illustrated by the recent Québec debate on an internal, dual citizenship, where Quebeckers would be citizens of Québec and of Canada, something experimented with success in Finland for the Swedish minority in the island of Aland.  This multiple identity also translates in multiple loyalties, as apparent in the willingness of Quebeckers to become essentially autonomous, all the while keeping ties with Canada, something Keating reports seeing in Europe’s stateless nations whose sanity, there, is not put into question.

Looking at the evolution of Québec in Canada, we see important structural change in the reality of a region asserting itself like never before, with fewer prospect of political adjustment to accommodate this change than ever before. Recent federal polls show that only 38 per cent of Quebeckers favour the current federal system[19]. That is less than the level of support for sovereignty. As any observer of the Canadian scene knows, no substantive reform is to be expected in the foreseeable future. At the turn of the century, it can be argued that Québec has neither of the usual “voice or exit” options.

No voice: Institutional change with major impact on its political autonomy was implemented against Québec’s bipartisan opposition in a new and far reaching Constitution adopted in 1982 and a new Social Union intergovernmental agreement in 1999, and in the new rules of secession law, misnamed Clarity bill, in 2001[20]. Québec’s substantial, wide ranging objections, sometimes unanimously voiced by its National Assembly and enjoying large popular support in the province, was simply disregarded as a variable in all three of these debates.  That federal MPs from Québec participated and, indeed, initiated these changes obviously blurs the issue. Yet other provincial governments and legislatures consented to the changes, whether or not MPs from their provinces were onside. The Québec government and legislature did not.

Less visible but structurally important is the continuing work of the Supreme Court, whose judges, named without provincial consultation, interpreting a constitution adopted against Québec wishes, progressively expand the paramountcy of federal laws over provincial laws: in 1988 (Crown Zellerbach) in commerce and environment; in 1989 (General Motors) again in interprovincial commerce and (Alberta Government Telephones) in telecommunications; in 1990 (Hall) in all fields of shared jurisdiction; in 1993 (Hunt) again expanding Ottawa’s role over provincial regulations affecting commerce; and expanding the scope of the federal criminal statutes to heretofore provincial areas in the late nineties. The cumulative impact constitutes “a rewriting of the foundations of the Canadian federal regime” writes Jacques Frémont, Dean of Law at l’Université de Montréal. He feels these changes are “so important that we can probably say that the evolution of the division of powers has shifted more, in these last 15 years, than at any time since the start of the federation” (Frémont, 98).  Such an evolution has a particular impact on that province that is most distinct in its approach to policy and legislation, Québec. Over a 12 year period, the Supreme Court has invalidated 30 per cent of contested federal laws, 42 per cent of contested laws from other provinces, and fully 52 per cent of contested Québec laws. A telling statistic on the grinding force of an outer-directed norm over one’s inner-directed originality (Brun, 1991)[21].

No exit: the new secession legislation sets a series of discretionary and unrealistic hurdles in the road to independence, in contradiction with the more even-keeled Supreme Court decision it purports to translate into law. The bill insists that a referendum on secession must be devoid of any reference to a desired form of association or partnership between the two future sovereign states, and even of reference to “negotiations”, although the Supreme Court’s core argument was that negotiations were compulsory for both sides. In effect, with this new law, if Quebeckers were to approve, by referendum and at any level of support – say, 75 per cent — a proposal that would try and adapt to Canada the European experiment, or any experiment of shared sovereignty, the Canadian Parliament would be legally barred from entertaining the notion. Had this bill been in effect since 1980, a yes vote of any margin at the 1980 and 1995 referendum would have had to be ignored by Parliament. Had it been in effect earlier for annexations as well as secessions, the 1949 Newfoundland referendum could not have been regarded as valid by Canadian MPs.

But if Quebeckers were to approve, by more than 50 per cent, a question deemed “clear” by the bill – on secession only – MPs would still be invited to determine whether or not a majority of Quebeckers really meant that they wanted to secede, and could decide that they did not – in fact would be under great political pressure to do so. Even a successful negotiation on secession would have to be approved by all provinces, several of which would have to hold referenda on the issue, thus asking their citizens to approve the break-up of their country. Any single provincial refusal could cause failure of the process – as it did for the Meech lake accord in 1990. Furthermore, on many counts, the law contradicts Canada-supported UN policy towards secession as formulated and applied in the nineties in all cases at hand: Eritrea, East Timor and Western Sahara (Lisée, 2000b). Each of these efforts would have been rejected under the new norms of C-20. I like to quote Alain Noël’s excellent summation of Ottawa’s policy towards Quebeckers unease in the current political structure: “Canada, love it or don’t leave it” (Noël, 2000).

Prospects for governance change

In the short to mid-term, governance change that would espouse the structural evolution of Québec and Ontario’s emergence as region states is highly unlikely. First, the brewing debate in the Canadian federation concerns the “fiscal imbalance” that is emerging between the Federal government on the one hand and the provinces on the other.  Given the present trends of strong upward pressure on the provinces’ health budgets, in particular, and the relative light pressure on the Canadian government’s direct responsibilities, Ottawa is collecting more taxes than it can use, the opposite being true in the provinces.

A reassessment of the responsibilities of both level of governments and an acknowledgement of the growing power and presence of at least some provinces – Québec and Ontario – could theoretically lead to a realignment of fiscal revenues accordingly.

The Conference board of Canada has produced a 20-years conservative projection for a Québec commission on the matter (Commission, 2002). Its results were rejected on the day of their publication by the then-Canadian minister of Finance, Paul Martin. All members of the Canadian government steadfastly deny any notion of an existing or upcoming imbalance (Finance, 2002). The debate within the Canadian government hinges on the way the Federal ministers will directly use Ottawa’s new found wealth.

 

One scheme that is favoured by some – including Mr Chrétien’s soon-to-be successor Paul Martin – is a massive entry of the Canadian government in the funding and governance of Canada’s major cities, to be done through a “New Deal”, above and beyond provincial authorities who have constitutional jurisdiction over cities. The project, unveiled in May 2002 by Mr Martin while he was Finance minister would expand and assure Federal responsibility on the engines of the two region-states, Toronto and Montreal, instead of delegating power and resources on their respective provincial governments (Martin, 2002).

Prospects for more flexibility granted to provinces in their international relations are also bleak. In a recent paper, Canadian constitutional scholar Ronald Watts quotes three instances where, he feels, “there has been some recognition of the interdependence of provincial responsibilities with issues of international relations” (Watts, 2003).  The first is the consultation of provincial governments during the negotiations of the FTA and NAFTA agreements.  But this was done while former Conservative Prime minister Brian Mulroney was in power, a nine year interregnum between 30 years of Liberal governments. Provincial participation in the current WTO round and in the talks leading to the Free Trade Agreement of in the Americas is not going as smoothly, certainly not as far as Québec is concerned. That the Québec Premier was famously excluded from addressing America’s heads of state and government who came in its capital at Ottawa’s invitation in April of 2001 can be seen as a purely political, transient and personal affair. Some foreign observers question the usefulness of this policy. Minister Counsellor for Political Affairs for the United States from 1992 to 1996 in Ottawa, David T. Jones, wrote that by acting in this fashion, “Ottawa leaves the impression of constant worry and fear that separatism has not been subdued, rather than confidence in Canada’s nationhood […]. The very intensity of this concern becomes counterproductive; it suggests fear that the federal success in Quebec since the 1995 referendum is ephemeral” (Jones, 2001).

More telling, and long-lasting, is Ottawa’s strong international action to hinder the success of an interparliamentary association that included provincial legislators of the Americas – the Parliamentary Conference of the Americas (PCOA), whose purpose is to give national and subnational parliamentary input in the process of integration of the hemisphere. The reason for Ottawa’s opposition: Québec is a founding and active member of the organisation, was the first to host its conference in 1997 (with Jean Chrétien as guest speaker), and uses it to multiply its network of international relations in Latin America. Ottawa withdrew its support from the successful PCOA, despite the entreaties of the Québec Liberal Party, and pushed instead for the creation of a rival interparliamentary organisation open only to members of central parliaments. The Inaugural meeting of this Inter-Parliamentary Forum of the Americas has taken place in Ottawa in March of 2001.

Watts quotes Team Canada as his second example of recognition of the provincial role. It is a fair point, since Ottawa could have decided to organise these high-profile business missions (to China, Latin-America, South-East Asia, Russia) without the Premiers, and reap the credit with business leaders that attend. It should nevertheless be noted that provinces are clearly more informed than consulted in the decisions on destination, timing and organisation of these trips. In the field, Premiers are mostly extras for the Prime minister’s speeches and meetings. Under provincial pressure, slots of time were set aside for provincial programs in the countries visited, however. Québec made considerable use of this margin of manoeuvre, as did, to a lesser extent, Ontario and Alberta.

Watts finally mentions the participation of Québec and New Brunswick in the Francophonie as an example of flexibility. Again, this participation was negotiated in 1984 under Brian Mulroney (and brokered by his then Ambassador to Paris Lucien Bouchard, who would become sovereignists Premier) with PQ Premier Pierre-Marc Johnson, then signed with Premier Robert Bourassa.  Such an accord was out of reach during the preceding Trudeau era, and it is clear to this observer that it would never have happened during the Chrétien era. In fact, Ottawa worked these past years to reduce Québec’s role in the Francophonie. It tried, and failed, at excluding Québec representatives from any an all discussions among Francophone members aimed at taking common or convergent positions to be relayed in other international bodies, like the UN and the WTO, where only sovereign states are invited.  Other retrenchments were made in bilateral relations. In 1998, Québec and France were prevented from signing an update to an earlier, 25-year-old old, agreement on reciprocal recognition of judicial findings, in matters of provincial jurisdiction. The wording had not changed, Ottawa’s rules had.

Québec’s 1999 suggestion that Ottawa adopt the German and Belgium practice of rotating the seat at UNESCO, which deals with education and culture, with representatives of interested subnational units was rejected by Ottawa.  The External Affairs minister simply refused to meet with the Québec minister of Relations Internationales to discuss the issue.  Watts is right in concluding that “by comparison with such examples as Switzerland and Belgium or even Germany, participation of the provinces in decisions on foreign policy and the development of direct relations between the provinces and foreign countries is far less developed in Canada”.

One can argue that the Québec sovereignist threat is a reasonable impediment to any extension of flexibility that would then be used by the sovereignists to further their cause. But by the same token, one could argue that flexibility given to Québec while it is governed by a federalist party could be misused when sovereignists return, and thus should not be granted either. The argument was used by opponents of the Meech Lake and Charlottetown constitutional reform packages, particularly on the provision that would have enabled the Québec government to submit a closed list of candidates for the three Supreme Court judges coming from Québec.

So if the Québec question is driving Ottawa’s unwillingness to recognise the provinces new role in international affairs, it makes little difference whether or not the PQ is in power. It may be, however, that the Québec question is a fig leaf behind which hides a more fundamental refusal, by Ottawa, to cede power in one area where it clearly dominates the agenda.

Whether it is one or the other – and it is most probably both – the federal state is currently codifying for all provinces and for the future its rigid response to Québec’s attempts at playing an international role. It would take a major reversal of policy, probably predicated on a change in the party in power in Ottawa, to start this process.

Impact on country-wide redistributive policies

One last point: both Keating and Courchene note how the emergence of a rich region state weakens its basic economic advantage, ergo its willingness, to share part of its wealth with weaker regions within the traditional country.  We have seen how Ontario and Alberta have pushed for a revision of the accounting of federal transfers in the past years, with considerable success. Québec has been on the losing end of this development. Yet if this trend continues, one could witness another reassessment, coming from poorer provinces, of the amounts of federal money pumped into Ontario’s GDP, for the sole reason that the federal capital lies within its borders.

The disproportionate amount of economic activity, research, salaries and purchases made in the Ontario economy by the federal government is clearly a factor of its success.  Furthermore, figures spanning the last 11 years show that Ontario’s share of federal capital investment, to look just at this piece of the puzzle, has not stopped growing, far in excess of its share of the population, as shown in Figure 9.

The Québec department of Finance has computed that, if the federal yearly investment in the economy (including capital investment, purchases, research, grants) were distributed in proportion to the provincial population, the Québec labour market would immediately gain 30 000 jobs. This would greatly reduce the already shrinking unemployment differential between Québec and the Canadian average[22].  If the pressure keeps growing from Ontario to cut back on redistributive policies, it is only a matter of time before other provinces start the accounting of the structural advantages[23] that Ontario derives from the federal state, and ask for compensation.  My guess is that, for Ontario, on balance, it might be worth it. For Québec as well.

 

References

 

Books, chapters, articles and papers

 

Beine, M and S. Coulombe (2002), Should Canadian Regions Adopt the U.S. Dollar ? Working Paper No 0106E, Department of Economics, Faculty of Social Sciences, University of Ottawa (revised). (at: http://www.ryerson.ca/econ/ConferencePapers/coulombeJRSversion-a.pdf )

Brun, H. and al (1991), Évolution de la jurisprudence fédérative de la Cour Suprême du Canada, 1978-1990, Québec, SAIC, Janvier 1991, 196 pages

Cooke, P. and al (1999) The Governance of innovation in Europe : regional perspectives on global competitiveness, London, Pinter.

Courchene, T. J. with C. R. Telmer (1998) From Heartland to North American Region State – The Social, Fiscal and Federal Evolution of Ontario, Toronto, University of Toronto Press.

Fortin, P. (1997) L’impact des lois de l’Assurance-emploi de 1990, 1994 et 1996 sur l’Aide sociale du Québec, Travaux en cours CREFE, Université du Québec à Montréal. (at : http://ideas.uqam.ca/ideas/data/Papers/crecrefec1.html )

Fortin, P. (2002) Has Québec’s Standard of Living Been Catching Up?, Université du Québec à Montréal and Canadian Institute for Advanced Research Revised, January 2002, 22 pages. (at: http://www.crde.umontreal.ca/cneh/fortin-txt.pdf )

Frankel, J. A. and A. K. Rose (2000)  “An estimate of the Effect of Currency Unions on Trade and Growth”, forthcoming in the Quarterly Journal of Economics, available as a first draft, 1 May 2000, 37 pages (at: http://haas.berkeley.edu/~arose/FRCU.pdf )

Frémont J. (1998), « La face cachée de l’évolution contemporaine du fédéralisme canadien », dans Beaudoin, G.-A. et al, Le fédéralisme de demain — réformes essentielles, Montréal, Wilson et Lafleur, pp 45 à 68.

Keating, M. (2003) “The Territorial State. Functional restructuring and political change” in T. J. Chourchesne and D. J. Savoie (eds), The Art of the State: Governance in a World without Frontiers, Montreal, Institute for Research in Public Policy.

 

Helliwell, J. F. (1995) Do National Borders Matter For Quebec’s Trade? NBER Working paper No 5215, 19 pages. (at: www.papers.nber.org/papers/W5215.pdf )

Helliwell, J. F (1998) How Much Do National Borders Matter? Washington, Brookins Press.

Helliwell, J. F. (2000) Globalization : Myths, Facts, and Consequences, C.D.Howe Institute Benefactors Lecture, Toronto,  64 pages. (at: www.cdhowe.org/PDF/Helliwell.pdf)

Jenson, Jane (2002) “Against the current : Child care and Family Policy in Quebec”, in Sonya Michel, Child Care Policy at the Crossroads : Gender and Welfare State Restructuring, New York, Routledge.

Jones, D. T. (2001) “Ottawa turns Landry Into a Martyr by Shutting him out of Summit”, in The Hill Times, 16 April 2001 ( at : http://www.thehilltimes.ca/newarchives/djones041601.html)

 

Lavoie, M. and al (2001), Les effets économiques de l’incertitude politique au cours des trente-cinq dernières années : peut-on les mesurer ? Université de Montréal, March 2001, 30 pages.

Levine, M. V. (1990) The reconquest of Montreal – Language policy and social change in a bilingual city, Philadelphia, Temple University Press, 285 p

Levine, M. V. « L’usage du français, langue commune », in Conseil de la langue française, Le français au Québec – 400 ans d’histoire et de vie, Fides, Montréal, 2000, pp 366-376

Levine, M. V. (2002) « La question ‘démolinguistique’, un quart de siècle après la Charte de la langue française », in Revue d’aménagement linguistique numéro Hors série, automne 2002, pp. 165-181. (at : http://www.olf.gouv.qc.ca/ressources/bibliotheque/ouvrages/amenagement_hs/ral01_charte_levine_vf_1.pdf )

Lisée, J.-F. (2000) Sortie de secours – Comment échapper au déclin du Québec ? Montréal, Boréal.

Lisée, J.-F. (2000) Why C-20 is a Democrat’s Nightmare, Brief at the Legislative committee of the House of Commons examining  bill C-20 on Québec’s secession referendum, Tuesday 22 February 2000 (at: http://www.vigile.net/00-9/lisee-20.html  )

Lisée, J.-F. (2003) “The Odd Couple: Mario Dumont’s ADQ and the ‘Québec Model’, in Inroads, Spring 2003. (at: http://www.vigile.net/ds-lisee/docs/Inroads-Lisee.doc )

Noël, A. (2000) “Canada, Love It or Don’t Leave It”, Policy Options/Options politiques, vol. 21, no 1, 2000, pp. 34-36. (at : http://www.irpp.org/fr/po/archive/po0100.htm#noel)

Piketty T. and E. Saez (2001) Income inequality in the United States: 1913-1998, NBER, 121 p. (at: http://pythie.cepremap.ens.fr/%7Epiketty/Papers/Piketty-Saez2001.pdf )

Proulx, P.-P. (1999) Les effets de l’Ale et de l’Aléna sur les économies canadienne, québécoise et américaine : examen des études récentes, Québec, Institut de la statistique du Québec.

Rose, A. K. (2000). “One Money, One Market: Estimating the Effects of Common Currencies on Trade.” Economic Policy 15 (30): 7–46

Ryan, C. (1999) “The agreement on the Canadian Social Union as Seen by a Québec Federalist”, in Inroads, June 1999, p. 27

Savoie, D. J. (2001) Pulling Against Gravity: Economic Development in New Brunswick During the McKenna Years, IRPP, Montreal, 2001, 199 pages.

Watts, R. (2003), “Managing Interdependence in a Federal Political System”, in T. J. Chourchesne and D. J. Savoie (eds), The Art of the State: Governance in a World without Frontiers, Montreal, Institute for Research in Public Policy.

Wolfson M. and B. Murphy (2000), “Income Inequality in North America : Does the 49th Parallel still Matter?”, in the Canadian Economic Observer, Statistics Canada, August 2000, Ct 11-010-XPB, 24 pages. (at: http://www.statcan.ca/francais/indepth/11-010/feature/eo2000_aug_f.pdf )

Reports

Beaudoin, L. (2001) Québec’s minister for International Relations, speech to Québec’s Manufacturers and Exporters association, September 2001. (at : http://www.mri.gouv.qc.ca/le_ministere/allocutions/discours_200010918_fr.html )

Comité interministériel sur la situation de la langue française (1996) Le français, langue commune : enjeu de la société québécoise, Québec, Gouvernement du Québec. (at : http://www.olf.gouv.qc.ca/ressources/sociolinguistique/3_3.html )

Commission on Fiscal Imbalance (2002) Report of the Commission on Fiscal Imbalance, Québec. (at: www.desequilibrefiscal.gouv.qc.ca/index_ang.htm )

Conseil de la science et de la technologie du Québec (2001), Rapport de conjoncture 2001 : pour des régions innovantes, mars 2001, 263 pages. (English summary at: www.cst.gouv.qc.ca/ftp/conjoncture2001/chap_3_ang.pdf   entire document in French at www.cst.gouv.qc.ca/ftp/conjoncture2001/rap_conj.pdf )

CRIC (Centre de recherche et d’information sur le Canada) (2000), Portraits du Canada 2000 – Analyse du sondage annuel de suivi effectué par le CRIC, Novembre 2000, p.38.

Finance department, Canada (2002) Fiscal Imbalance: the Facts, April 2002, Ottawa. (at: www.fin.gc.ca/toce/2002/fbcfacts2_e.html )

Office de la langue française, La langue des cadres d’entreprise, (at L’Office de la langue française du Québec website : www.olf.gouv.qc.ca/situation.html heading 3.3

Martin, P. (2002) Speech by the Honourable Paul Martin, Minister of Finance for Canada, to members of the Federation of Canadian Municipalities, Hamilton, Ontario, 31 May 2002. (at: www.fin.gc.ca/news02/02-046e.html )

Ministère de l’éducation (2001) “Graduation Rates in Québec and the OECD Countries”, in Education Statistics Bulletin, Québec, Janvier 2001, 10 pages (at: http://www.meq.gouv.qc.ca/stat/Bulletin/bulletin_21an.pdf )

Ministère de l’Éducation du Québec (2000) « La dépense d’éducation par rapport au PIB en 1997 – Une comparaison Québec – pays de l’OCDE », dans Bulletin statistique de l’éducation, No 20, novembre 2000, 14 p. (at  http://www.meq.gouv.qc.ca/stat/Bulletin/bulletin_20.pdf)

Ministère des Finances du Québec/KPMG (1998) La fiscalité des particuliers et le coût de la vie – Comparaison entre Montréal et différentes villes nord-américaines, Budget 1998-1999, février 1998, 91 pages. (at: http://www.budget.finances.gouv.qc.ca/budget/1998-1999/fr/PDF/fiscpafr.pdf )

KPMG (1999) The competitive alternative – a comparison of business costs in North America and Europe – Focus on Québec, September 1999, 133 pages.

KPMG (2000) The competitive alternative – Focus on Ontario, 21 pages

KPMG (2001) Facts on Alberta, February 2001, 39 pages (at: www.alberta-canada.com/statpub/pdf/Facts_2001.pdf )

KPMG (2002) Competitive alternatives – Comparing business costs in North America, Europe and Japan, January 2002 (at www.competitivealternatives.com)

Lanctôt, P. and G. Fréchette (2002)  Fiche synthèses sur la pauvreté au Québec et en Ontario, 1996-1998,  Direction de la recherche, de l’évaluation et de la statistique, ministère de l’Emploi et de la Solidarité sociale. (at : http://www.mess.gouv.qc.ca/francais/utilitaires/statistiques/publications/fiche_synthese022002.pdf )

PriceWaterhouse/Invest-Québec (2001), Taxation in Québec 2001-2002, (at www.infostat.gouv.qc.ca/docs-keh/invstqc/an/pdf/fisc_2001-2002.pdf)

Tran, Q. V. and Josep, H.-C. (2001) Regard sur la compétitivité de l’économie québécoise,  Institut de la statistique du Québec, Extrait de la publication L’Écostat, juin 2001, 9 pages, (at http://www.stat.gouv.qc.ca/bul/economie/pdf/eco2_01.pdf )

Newspaper articles

Canadian Press (2001) « Sondage Léger et Léger: Les Québécois sont plus ouverts à une annexion aux États-Unis¨, in Le Devoir, Sept 10, 2001, p A4

Chipello, C. J. (2001) « Quebec’s public-pension agency has a lot of heft – and well beyond Canada« , in The Wall Street Journal, 1 October.

La Presse (1998) « Harris tente de remplacer Bouchard en Amérique Latine », in La Presse, January 22 1998, B1

Lecours, R. (2002) « Le fardeau fiscal des entreprises reste moins lourd au Québec qu’en Ontario », La Presse, 23 June, p A10

Picard, A. (2001) « Most want PM to cede sovereignty over border« , in The Globe and Mail, 1 October 2001, p A1

Annex

Rapport de conjoncture 2001 : Pour des régions innovantes

QUÉBEC’S POSITION IN THE WORLD – G7 COUNTRIES

 

Indicators                          Rank :

1

2

3

4

5

6

7

8

1- GDP Growth (1997- 1998)

USA

France

Canada

Germany

Québec

UK

Italy

Japan

2a- Schooling level (postsecondary-96)

Canada

Québec

USA

UK / Germany

France

*

*

2b-Schooling level (university-96)

USA

Québec

Canada

UK / Germany

France

*

*

3- Technological level (HighTech-96)

Japan

Québec

France

USA

UK

Germany

Canada

*

4- Private  R&D spending (97)

USA

Japan

Germany

France

Québec

UK

Canada

Italy

5- Private R&D staff (97)

Japan

Germany

Québec

France

Canada

UK

Italy

*

6- Scientific +  technical staff (96)

Japan

USA

Québec

Germany

Canada

France

UK

Italy

7- Investment, machinery+equipment (97)

Japan

Italy / USA

France

Germany

UK

Canada

Québec

8- Exports to GDP ratio (97)

Canada

Québec

UK

Italy / France / Germany

USA

Japan

9- Exports by  technological level (96)

USA

UK

Japan

Québec

France

Germany

Canada

*

10- Number of patents (95)

USA

Japan

Germany

Canada

France

UK

Italy

*

11- Industrial funding of Univ.research (97)

Canada

Québec

Germany

UK

USA / Utaly

France

Japan

12- Education spending (95)

Québec

Canada

USA

France

Germany

Japan / Italy

*

13- University research spending (97)

Québec

Japan

Germany

France / USA

UK

Canada

Italy

14- Number of scientific publications (95)

Québec

Canada

UK

USA

France

Germany

Japan

Italy

* Missing data for some countries

Source : Conseil de la science et de la technologie du Québec, Rapport de conjoncture 2001 : pour des régions innovantes, mars 2001, p. 78.


[1] This is an expanded and updated version of a paper presented to the Conference The Art of the State: Governance in a World without Frontiers, held by Montreal’s Institute for Research in Public Policy (IRPP) in October of 2001 and excerpted in IRPP’s December 2001 Policy Option magazine, under the title  Is Quebec a North American Region-State?, pp 25-32. From 1994 to 1999, the author was political and international affairs advisers to Quebec premiers Jacques Parizeau and Lucien Bouchard.

[2] Updating his research for a 2000 paper and using 1996 trade data, Helliwell revised downward the intensity of province-to-province trade over province-to-state from 21 to 12 times higher (Helliwell, 2000). We look forward to a more current reassessment.

[3] Alberta’s international exports grew by 265 per cent, driven by oil, but it’s international trade ratio rose by only 72 per cent.

[4] Calculations by Stéphane Comeau, Sylvain Carpentier and Christian Trudeau of the Ministère de l’Industrie et du Commerce du Québec, on the basis of Mergers & Acquisitions in Canada data, with my thanks.  The Merger & Acquisition figures are not scientifically satisfactory because the value of a number of investments is not reported.  But given a long period, they provide a trend. Over the 1994-99 period, the reported values amount to 10 per cent of the full amount of US direct investment in Canada and 17 per cent of the full amount of Canadian direct foreign investment in the US, as compiled in Statistics Canada’s International investment position figures, data unfortunately not broken down by province.

[5] In portfolio and real estate investment, the Québec Caisse de dépôt is Canada’s largest single investor abroad, with 37 billion $ worth invested at the end of 2000 (Chipello, 2001).

[6] Interestingly, contrary to Québec’s website (at http://www.infostat.gouv.qc.ca/iq/section3/3_6.htm?lg=an&th=2&rt=1&cp=section3/3_6.htmshape=) , the otherwise elaborate government of Ontario website do not offer interprovincial comparisons of corporate taxes (at http://www.2ontario.com/welcome/bc_000.asp#bctx). Alberta’s website is bolder, for good reason, but Québec does well in its comparative business tax tables (at:   http://www.alberta-canada.com/locate/taxation.cfm ).

[7] A testimony to KPMG’s consistency from one client to another. The authors tried to side-step this difficulty by presenting primarily a favourable Ontario v Canadian-average comparison, but a city by city chart revealed the Québec advantage (KPMG: 2000). The Alberta version (KPMG, 2001) puts Montreal in a competitive position with its own cities, as did the Québec study.

[8] The tally would include $5 a day day-care (which cost 25$ in the private sector), Quebec’s extra effort for poor family allowance, pharmacare, public financing of private schools, lower post-secondary tuition and a generous scholarship program (three expenses primarily targeted to the middle-class), greater support for culture, local development, legal aid and low-rent housing. These alone cost 5 billion. Publicly-owned Hydro-Québec’s decision to sell electricity at rates 72 per cent lower than in Toronto, Ontario (2001 figure) is a major avoided cost for Quebecers.

[9] In 2000, having reached cruise-speed, Investissement-Québec organised a hundred foreign missions of prospecting and greeted 200 potential investors in Québec. For the year, its portfolio yielded 37 new foreign investments worth 1.2 billion can $. As for the SGF, its 2000 annual report states that the number of new foreign investments it generated went from 4 a year in 1996 to 49 in 2000, with investments going from 78 million in 1996 to 2.4 billion in 2000.  Cumulative impact on direct jobs (minus construction phase) went from 800 in 1996 to 10,200 in 2000. There is some overlap between the figures reported by the two institutions.

[10] Investissement-Québec reports 50 positive stories in the 1998-2000 period. Among them: The Financial Times, The New York Times, The Washington Post, Wired magazine, and specialised publications like Davos’ World Link, or site selector’s fare : Corporate Location, Area Development, and Site Selection

[11] Some major items have had a significant impact on Québec’s public finances at this juncture: refusal to consider any compensation for GST harmonisation (2 billion $) and refusal to consider any reimbursement for Hydro-Québec’s losses during the January 1998 ice storm (430 million $).

[12] It is sometimes argued that Québec’s smaller demographic growth is a sign of economic weakness. Over the period, Ontario’s population growth was greater than that of Canada as a whole (12.6 per cent) and the US (14 per cent). On the other hand, Québec’s population growth was greater than those of the states of New York, Pennsylvania, Massachusetts or Ohio, all economically very successful in the nineties. When fertility rates, abysmally low in Québec, are taken out of the equation, Québec’s attractiveness to immigration, though still lower than Canada’s, is 40% higher than the US for the nineties, and higher than any western European country (Levine, 2002:169). Contrary to widely held views, the rate of retention of immigrants to Québec (some being surprised to encounter a French-speaking society), is higher than 75%.

[13] This annexed.

[14] The 1988 data is the last available. In 1993 still, 57% of the 127 corporations employing more than 1000 employees in Québec had a majority of non-Francophones on their Board of directors (Comité, 1996).

[15] The rise in the level of bilingualism of Anglos in the ROC is also partly a (perverse) result of Québec policy, A rough estimate shows that at least 40 per cent of the new bilingual Anglos added in the ROC between 1971 and 1996 are in fact Québec bilingual Anglos having moved out of Québec, in part because they disagreed with linguistic and political developments in their home province. Overall, in the ROC, the proportion of Canadians that can carry a meaningful conversation in French has shrunk somewhat, from 8.2 per cent in 1951 to 7.6 per cent in 1996. See my calculations (Lisée, 2000:134) based on Statistics Canada’s sensitivity test of 1988 on what a real conversation is.

[16] All data from the 1996 and 2001 Canadian census. The ratios of other minority language over French are 3 to 1 overall in Canada outside Québec, 5 to 1 in Ontario and Alberta, 7 to 1 in Saskatchewan.

[17] But the question of the outright disappearance of the border was not asked by that second poll, as it was in the previous one. It is a good bet that, given Quebeckers overwhelming opposition to recent US foreign policy decisions, this pro-integrationist stance has simmered down in 2003.

[18] Québec’s minister for International Relations, Louise Beaudoin, summed it up in 2001: « On évoque souvent les « quatre moteurs » de l’Europe que sont la Catalogne, le Bade-Wurtemberg, la Lombardie et Rhône-Alpes, comme autant de pôles de croissance. Le gouvernement du Québec a d’ailleurs signé des accords de coopération multisectoriels avec deux de ces pôles, Rhône-Alpes et la Catalogne, ainsi qu’avec le land voisin du Bade-Wurtemberg, la prospère Bavière, avec laquelle nous entretenons depuis dix ans d’excellentes relations. » (Beaudoin, 2001)

[19] The question was : Êtes-vous favorable/défavorable au maintien du fédéralisme actuel, sans changement majeur ? That poll showed support for sovereignty at 39 per cent, and at 58 per cent if respondents were assured of achieving both sovereignty and some form of economic and political partnership with Canada, which is the official platform of the independence movement. Almost identical results were reported in the November 2001 study, but the question on current federalism did not appear in the CRIC’s published reports. The December  2002 edition dropped these questions altogether (CRIC, 2000). Other polls in 2002 and 2003 show sovereignty hovering around the 43% mark.

[20] For a federalist view of Québec’s disappearing clout in Canada, see (Ryan, 1999).

[21] The trend is consistent with that of an earlier study.

[22] Unfortunately, in 1997 Ottawa has modified its purchase reporting with the effect of (slightly) obscuring Ontario’s advantage, and give Québec’s data an artificial two per cent share boost.  In the past, Ottawa would for instance count as an Ontario purchase an Alberta Post Office’s decision to buy computers from a Toronto firm.  This is now counted as an Alberta purchase.

[23] It has already begun in Atlantic Canada (Savoie, 2001).