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The Second Fall of Quebec Inc.

Time for an Untranquil Revolution
Beryl P. Wajsman 4 March 2006

"Democracy, the way we are practicing it, seems to be just

gestation for the tyranny of the mediocre. "

~ Bertrand de Jouvenal


The economic and social construct known as Quebec Inc is a structure of parallel pillars. Buttresses of centralized state control and intervention with four times the number of bureaucrats than the State of California serving a population one-fifth the size. The promise was that working in tandem they would secure a bright future for all Quebecers with transparency and equity away from the influence of those terrible English and “vendu” elites. Savings and benefits from economies of scale would be passed on to the people. Well, it hasn’t quite worked out that way under the Charest government.


The economic triad of the Caisse, SGF and Investissements Québec has been pretty well marginalized since the first year of Charest’s administration. He had, after all, promised to do just that. Get the state out of the business of business. It was a legitimate political and philosophical position. One that Margaret Thatcher and Keith Joseph accomplished with some success in Britain. But to take apart a government structure in place for so long required some foresight and planning. Unlike Thatcher and Joseph, the Charest team really didn’t have a plan.


In Britain the devolution of state economic involvement was done quite openly. When reporters asked Thatcher how she would accomplish it, she raised a copy of Friedrich Hayek’s “The Constitution of Liberty”, slammed it down on the table in front of her and said, “This is what we believe. This is what we will do.” High drama and high accomplishment indeed. Here in Quebec, the manner was not quite so dramatic, nor the results so accomplished.


It was true that the economic instruments of Quebec Inc. had their problems. But they also had many achievements. The last two years of the PQ administration saw Montreal surpass Toronto and Vancouver in total investment dollars precisely because foreign investors had state entities to partner with in a jurisdiction where not only the law, but the language, was foreign. The SGF, a singular target of the Charest Liberals because its Chairman and many of its group presidents had ties to the PQ, actually had two-thirds of its divisions solidly profitable and its Health division was responsible for a joint venture with Dutch-based DSM Biologics that resulted in Montreal having Canada’s first drug-testing laboratory for humans. Some two hundred jobs were created in that venture alone.


The Caisse, Quebec’s pension fund, did have several underperforming years, but then so did most mutual funds at the time Charest came to power. It is questionable whether it was necessary to order it to limit investments to conservative income rather than growth opportunities. Investissements Quebec, whose returns were not outstanding but which had created a significant number of jobs in small companies of under 50 employees where 80% of job creation came from, has been eviscerated.


So what do we have to show for the fall of the first pillar of Quebec Inc.? Nothing. Over 300 companies in the Caisse-SGF- Investissements Quebec world have had their book values written down to $0. Unlike Thatcher and Joseph who had lined up international investment syndicates to move into the government’s shoes – but with limited government guarantees in place – Charest depended on a small circle of highly placed businessmen who assured him that investors would be found to fill in the gaps. Well, they haven’t been found. The best intelligence from law firms specializing in foreign investment tells us that some 14 major international syndicates have closed down their plans to come into Quebec. Only some 10% of the 300 plus companies have found buyers, and tens of thousands of workers stand to lose their jobs. To add insult to injury, Montreal now ranks third to fourth, depending on the month, among large Canadian cities in total investment dollars.


Pride goeth before the first fall of Quebec Inc.


But the past ten days has shown that, despite disagreement on the forced first fall of the economic pillar of Quebec Inc., the social pillar of Quebec Inc. may well deserve a forced second fall. This construct of agencies ranging from Hydro-Quebec, the Auto Insurance Board (SAAQ), the Liquor Board (SAQ), and the gaming commission (Loto-Quebec), among others, has been riddled with malfeasance, misfeasance and nonfeasance.


Whether or not it is the proper role of government to even be involved in the control of liquor and gaming is an appropriate subject for another debate. But for now we’re stuck with it in Quebec. In the past ten days we’ve been flooded with news out of SAQ of price-fixing; million dollar plus directors’ expense accounts and large donations to Charest’s Liberals from the members of the its board. Loto-Quebec, despite the objections of citizens groups and Quebec’s own public health department, is moving ahead with plans to build a new casino complex in one of Montreal’s poorest areas. Concerns have been raised on everything from increased gambling addiction among people without hope, to the disappearance of affordable housing due to development speculation. In fact, rumours abound that the only reason for moving the Casino is to satisfy certain businessmen with close ties to this administration.


The whole point of SAQ was to control liquor supply; stop price-gouging and provide wine and spirits to Quebecers at affordable prices. Whether or not the charges being thrown at SAQ are true, what is not contested is that 60-80% of the cost of a bottle at SAQ outlets go to cover provincial taxes and SAQ fees. This is hardly the “citizen-friendly” anti-gouging agency it was meant to be. If Charest wants to be taken seriously about his plans for reforming Quebec Inc., perhaps he should start by privatizing SAQ. Prices couldn’t get worse. They’re lower in Ontario. But…ooops…I forgot. He won’t do that. As of some 18 months SAQ’s surpluses got siphoned off into the government’s general accounts. So we won’t be seeing many reforms any time soon.


Come to think of it, the same is true with Loto-Quebec. Next to Hydro, Quebec’s biggest money-maker, it spends a measly 1% of its revenues on programs to combat gambling addiction. I guess nothing will stop that new Casino from going up.


The SAAQ was created to provide all Quebecers with $50,000 personal injury insurance coverage. It is obviously laughable, but we were assured that something was better than nothing. And Quebecers were promised that it would not mean more money after the first year for license and registration renewals. Well, SAAQ has just announced its third increase in six years, this time a whopping 10%.


Last, but not least by far, we end with Hydro-Quebec. This is the economic engine of the province. It gets to sell its power to New England states and by contract must service them even if Quebec is in brown-out. It’s a money-maker year in and year out. But because its surpluses have also been taken into the general accounts, Quebecers just got a doozy of a rate increase of 5.4%. This is the fourth increase in two and one-half years. The total of these increases is 10.5%. Electricity rates are getting so high that Hydro had to institute special subsidy programs for poor people and the business community is concerned that new companies won’t locate in Quebec because its energy rates are no longer that competitive.


What’s particularly galling about the Hydro situation is that power was nationalized here in the early sixties because private suppliers were boosting rates so often that the poor couldn’t afford heat in the winters and several dozen people froze in their beds each year. We may soon be seeing that again.


As a lawyer friend of mine pointed out recently the over-riding irritant of three of these agencies of the “public welfare”, Hydro, SAQ and SAAQ, is that their rate and price  hikes are an indirect tax on the people. And since when does a government cede its taxing power to state agencies? In Hydro’s case it only has to go before the Energy Board (Régie de l’énergie), make its case and gets the right to increase rates. No discussion in the National Assembly. No approval by elected officials.


As this friend pithily pointed out, “…it’s taxation without representation…” And we all remember what happened in America in 1776 over that issue. A one-penny tea tax led to the Boston Tea Party, the Battle of Concord and the American Revolution. A great new nation was born.


Maybe it’s time for us to become great. Anyone for a Revolution?




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