Screen Shot 2013-10-15 at 12.11.13 PMOn October 7, 2013 Quebec unveiled its new economic policy entitled Priorité Emploi (Putting Jobs First). It is a very detailed programme that essentially aims to do two things:

  1. In the short term Quebec wants to renergize a sputtering economy with “shovel-ready” public investments in social infrastructure. It also wants to leverage Quebec’s large electricity surpluses to attract new investment over the medium term. All good, but there is nothing particularly innovative here.
  2. In the long term, the government wishes to transform Quebec into a green, efficient and innovative manufacturing base, and increase exports to 55 percent of GDP. This is quite ambitious and far more interesting.

The medium-sized manufacturing gap

Manufacturing represented 14.1 percent of Quebec’s GDP in 2012. This is more than Ontario (13.3 percent) or the U.S. (12.4 percent). It is the second largest component of the economy after the public sector.

The Quebec manufacturing sector is diversified but somewhat imbalanced. It is characterized by a few large entities and a vast number of small undertakings. Quebec has few middle-sized manufacturers.

Large entities have economies of scale and considerable means at their disposal. They also have a greater structuring effect on the economy through their large supply chains.

Smaller entities, on the other hand, have less access to capital and take longer to introduce new technologies. As a result they are not as efficient and have difficulty keeping up with development and innovation. Medium-sized companies by definition have greater chances of becoming large entities.

Quebec’s proposed economic policy wants to address these structural issues by providing smaller manufacturers with easier access to capital, tax credits, greater research and development, faster deployment of new technologies, improved manpower training and better market intelligence.

More ambitiously, the government wants, in cooperation with regional and local organizations, to identify 20 or so “champions” that will have the ability within 10 years to become mid-sized companies with annual sales of $200 million or more. While Quebec is keen to roll out an electric transportation strategy, the government is not prescriptive as to the sectors or regions from which these champions are to emanate.

In the North American context, an economic strategy as detailed and dirigiste may seem odd and out of place. But it is important to remember that more than 45 percent of the Quebec economy is effectively controlled, or dependent on the federal, provincial and local governments. This is far more than in most, if not all regions, of North America and helps explain why Quebecers expect governmental authorities and institutions, including their large pension funds, to play an active economic role.

A lesson from Japan

Quebec certainly has the capital and the human resources to carry out an economic policy that is reminiscent of the strategy of Japan’s powerful Ministry of International Trade and Industry (MITI).

MITI effectively ran the Japanese economy from the 1950s through the 1980s. MITI as architect-in-chief decided the direction of the Japanese economy, and which companies to assist or not. The Japanese MITI model has been replicated with varying degrees of success throughout East Asia and it will be interesting to see whether Quebec will have as much success in a more globalized economy.