Nicolas Van Praet - MONTREAL — Quebec Premier Jean Charest’s government has crashed the gates of private business, insisting it would do everything in its power to block U.S. home-improvement retailer Lowe’s Cos. from buying local champion Rona Inc.
The meddling this week stunned some Bay Street investors, who called it an overreaction of epic proportions. As Norman Levine at Toronto-based Portfolio Management put it: “These are stores, not nuclear reactors. They’re not strategic to anything or anybody.”
The only thing Quebec will succeed in doing by horning into the takeover battle is maintaining the status quo and perpetuating what many people argue is bad management at Rona, said Mr. Levine. That doesn’t serve anybody’s purpose except that of chief executive Robert Dutton. “This company,” says Mr. Levine, “will start to fade.”
But behind Mr. Charest’s move is a simple fact: His own Liberal government is danger of fading after nine years in power. By playing tough against a foreign company, he steals away some key ammunition his chief political foe would have had against him as they duke it out in a month-long election campaign.
That foe is Pauline Marois, leader of the Parti Québécois party, which advocates national sovereignty for Quebec and separation from Canada. If early polling numbers hold, she will be in the premier’s chair after the Sept. 4 vote. And if she executes on the key element of her party’s April 2011 program, to pick as many fights as possible with the federal government, Canadian business and ordinary taxpayers may be in for a rude awakening.
The PQ’s game plan if it wins power will be to act as a sovereignist government — demanding from Ottawa more powers and revenue-generating capability for Quebec. All Quebec political parties have generally opposed the Harper government’s stance on social issues such as the environment and gun control. But the PQ would take things further by trying to make Quebec even more autonomous.
Ms. Marois and her team have concluded that the federal Conservatives don’t share the values of Quebecers and she is determined to wrestle control over things such as employment insurance and economic development on the way to a definitive split with Canada. If Ottawa says no, the PQ may take the matter directly to Quebecers in a series of issue-by-issue referendums as it builds towards an ultimate referendum on separation.
The stance worries some corporate leaders, who note the province’s share of business investment already trails that of other jurisdictions as a percentage of its population.
“If you’re a company trying to decide whether to invest in one place over another, uncertainty and political instability in one place might tilt the balance,” said HEC economist Germain Belzile. “It won’t impact the big investments made by Hydro Quebec and Bombardier [Inc.]. But they’re not the only ones in this economy.”
A continuous series of battles may have other effects. Quebec’s borrowing costs are increasing faster than other provinces at the moment as the prospect of the PQ returning to power adds to creditor concerns, according to Bloomberg data. Any failure by the PQ to maintain a steady hand over public finances and flounder in returning the province to budgetary surplus would further exacerbate that situation.
Reading the PQ platform is a bit like peeking at the wish-list for a heavily statist francophone utopia. A PQ government would ensure that everyone in the province has access to high-speed internet and wireless phones. It would educate citizens on the value of buying local, starting in primary school. In addition, it would approve the construction of a fast train between Quebec City and Montreal.
The party is also pledging to take all steps to protect the current supply-management system for the province’s agriculture and food industry, an issue that is expected to be central in trade talks between Canada and other nations. It wants to expand the mandate of Quebec’s environmental review board to weigh the impact of every major resource project. It would look at implementing a new tax on wealth accumulation, a measure that would presumably hit the well-heeled Ms. Marois herself. The PQ leader listed her mansion on Île Bizard, near Montreal, in 2009 for $8-million.
There are specific business measures as well. A PQ government would extend current French language requirements, which now apply only to larger companies, to firms employing between 11 and 49 workers. It would create a new super bank in charge of economic development to replace all current provincial and federal programs. Finally, it would raise mining royalties and boost the government’s stakes in resource companies.
Such heavy-handed government interventionism may scare some people. But fiscal reality has a funny way of keeping power in check, says Filip Palda, professor of economics at the École nationale d’administration publique.
“Quebec’s debt is so huge that no matter what government comes in, their hands are pretty much tied,” Mr. Palda said of the province’s $184-billion tab, at 55% Canada’s highest as a percentage of GDP.
All ruling parties in Quebec tend to be practical when facing crises, he added. For example, in response to hospital waiting lists that are among the longest in the country, the current government has allowed free-market private clinics to flourish.
“I haven’t heard the PQ making any noises about that,” Mr. Palda said. “And if [they were really] socialist, highly interventionist, ideological rabid revolutionaries, that would be the first thing they would target.”
In terms of its project for Quebec-country status, however, Mr. Palda believes the Parti Québécois may actually build support for the idea that separatism is not an economic disaster. He says the context has changed dramatically since the last referendum in 1995 and he points to a growing body of research by Harvard economist Alberto Alesina and others that shows that global trade has been pushing nations to fragment.
Mr. Palda, argues however, that federal transfer payments are currently sheltering Quebec from a real financial reckoning. Without them, the PQ would have to drop any plans to expand the state bureaucracy because they will not be able to compete internationally otherwise.
“Some realities are going to get imposed very rapidly if they go it alone. And those realities will restrict the size of the government,” he said.
Whether Quebec would ever get to that point is debatable. Current support for sovereignty stands at about 40%, polling firm Léger Marketing said Friday. Support for a series of referendums demanding more powers from Ottawa is unknown.
Lucien Bouchard, the former separatist premier who engineered one of Quebec’s most dramatic spending cut programs in the 1990s, has repeatedly insisted that lawmakers need to focus on returning the province to permanent economic health before doing anything else. But in a province where every interest group seems to have a pressing need, political will has had trouble heeding that warning.
“Fundamentally, [the PQ] doesn’t want to play within the Canadian confederation. It wants out,” said Quebec economist Marcel Boyer. “That taints everything it does and it steers attention away from Quebec’s real issues. Those issues are humungous. But all the debates about independence allow us to forget, momentarily, the real problems we face.”