The economic jig is up, Mr. Landry
Bernard Landry is right that Quebec is getting a raw deal from Canada. But he couldn’t be more wrong about why.
Just the other day the new Quebec Premier was struggling manfully to explain why a fresh injection of $1.5-billion in equalization payments was yet another humiliating affront to the province’s pride: Equalization merely puts a number on the extent to which federalism short-changes Quebec.
Quebec’s problem is neither federalism nor sovereignty, but rather the abject failure of the province’s distinct economic recipe. In this recipe, the so-called « Quebec Inc. » government and a handful of state and favoured private corporations dominate economic decision-making. Government’s role is bossily arranging all the economic players through subsidies, heavy-handed regulation, and a manipulative tax regime, constantly substituting its judgment for that of investors and business people as to where investments and jobs should go.
The Quebec Inc. approach would be unaffordable if Ottawa were not topping up the economic shortfall that the province’s own policies regularly produce. Federalism’s true failing is that ill-thought-out transfer programs from Ottawa obscure from Quebeckers the price of their province’s own policies.
The rise of Quebec nationalism transformed the role of government in both Ottawa and Quebec City. The driving force behind policy became a bidding war for the political allegiance of francophone Quebeckers. Spending was often seen as good because of the political dependence that it created, rather than for the concrete social benefits it might produce. Largely anglophone, private-sector economic activity declined in importance and prestige in the eyes of the Quebec government, while public-sector activity, under the control of a francophone majority, blossomed. Equalization began to shift significant resources into the hands of the Quebec government – the more the provincial private sector declined, the greater the transfer – all largely financed by taxpayers elsewhere in the country.
The logical outcome has been Quebec’s increasing dominance over all economic decisions within the province. Quebec has, for instance, moved massively in recent years into the business-subsidy game in an attempt to woo investors. They are using money from taxpayers in other provinces to compensate businesses for the unattractive business climate created by the dirigiste policies of the provincial government.
According to research for the Atlantic Institute for Market Studies, in 1998, the Quebec government gave away an incredible $3.18-billion to businesses, more than the $2.2-billion given by the nine other provincial governments combined. Ottawa tops up these subsidies as well: Combined federal and provincial business subsidies per private-sector employee in Quebec are 75 per cent higher than the Canadian average.
Atlantic Canada has suffered huge collateral damage from this tax-and-spend competition between Ottawa and Quebec City. The federal government must offer its programs on a national basis. Thus, dependency-creating transfers and regional development programs aimed at seducing Quebeckers have crippled the economies of provinces farther east. Massive transfers from the rest of the country have only delayed the day when Atlantic Canadians have to confront the painful choices necessary to create a climate attractive to investment and economic productivity.
And what have these decades of competitive bidding for the political loyalties of Quebeckers achieved? According to some recent research by the Institut économique de Montréal, for every 10-percentage-point increase in government spending, an economy forgoes 1 per cent of potential economic growth each year. Using this compounding measure, if the share of wealth spent by Ottawa and Quebec City had stayed at the 1971 level, they estimate that Quebec’s gross provincial product in 1998 would have been higher by nearly half, or almost $50,000 per family of four.
Bernard Landry likes to hold up Ireland as an example of where Quebec should go – a tiny, sovereign country that has known phenomenal economic growth in recent years. But as economist Fred McMahon shows in his book Road to Growth, Quebec is far from following Ireland’s example. From 1987 to 1989, Ireland cut government spending from more than 50 per cent of GDP to less than 40 per cent, and cut taxes from nearly 40 per cent of GDP to under one-third.
Ireland shows that Quebeckers hold their own economic fate in their hands. A brighter and more secure future for la belle province would seem to flow, not from independence from Ottawa, but more independence from government tout court.
Michel Kelly-Gagnon est président de l’IEDM, Brian Lee Crowley est président de l’Atlantic Institute for Market Studies de Halifax.