You know François Legault’s hobby, his ultimate goal, which is for Quebec to catch up with Ontario’s standard of living.
Posted at 6:30 a.m.
However, to achieve this, we would have to transform our economy and make difficult decisions, according to a report by the consulting firm McKinsey, commissioned by the Ministry of Economy and Innovation.
The main part of the study, which I obtained, makes sometimes painful observations on our economic model. And in summary, McKinsey believes that several projects should be launched to catch up with Ontario: boom in exports, doping of investments, increase in working hours for employees, reform of research assistance, increase in the number of university graduates , targeting up-and-coming sectors and recovering lagging industries, such as construction and agri-food.
To orchestrate the catch-up, McKinsey suggests creating an economic “transformation office,” made up of members of the Prime Minister’s Office, the Ministry of Economy and other relevant ministries. Close monitoring of progress should be done each quarter by the committee using some forty key indicators comparing Quebec to Ontario, in particular.
The 281-page report I obtained was submitted in December 2021 to the Ministry of the Economy. It is detailed, with examples of concrete actions taken in other countries, but not necessarily stunning on some of the findings of our economy.
For his six-month work, should I specify, McKinsey received $4.9 million from the government. That’s the equivalent of 20 consultants working six months full-time at $250 an hour, according to a quick calculation. Hmm…
Over the past five years, Quebec has narrowed its lag in standard of living compared to Ontario, dropping it from 16.4% to 12.9%. To fully close the gap, the report estimates, Quebec’s GDP must grow from $44,000 per capita in 2019 to more than $64,000 in 2036.
This jump of $20,000 in fifteen years requires an increase in the number of workers expected by 630,000, notably immigrants, as well as an extension of the working hours of Quebecers by the equivalent of 1.5 weeks per year. , among others.
Above all, McKinsey calculates, like many other studies, that most of the catch-up (78% of the $20,000) must be achieved by a markedly stronger growth in our productivity. The growth rate should go from about 1% per year to 1.7%, which is major. This boom would be possible with an intensification of research, but also a boom in exports and investments and better training of workers.
Painful findings
Each of the elements is analyzed in detail, with strategies for improvement. We are talking, for example, about the employment rate of immigrants, of immigrants who settle in the regions, the percentage of women in engineering, the percentage of jobs worth more than $100,000, the absenteeism rate for disease, venture capital per capita, research as a proportion of GDP, and the regulatory shackles of government and municipalities.
Findings are sometimes harsh. In the agri-food sector, Quebec’s productivity lag compared to Ontario is 22% for food manufacturing. All things considered, exports of these foods are 40% lower in Quebec and investments are 34% lower. The report gives examples of promising initiatives in Israel (research), France (marketing), the Netherlands (port) and Singapore (venture capital).
In construction, productivity has been declining in Quebec since 2012 (-1% per year), as in the United States (-1.3%), while it is rising in British Columbia (+2% per year), France (+0.7%) or Germany (+0.5%), for example.
The report estimates that Quebec would significantly reduce its lag vis-à-vis Ontario by raising its productivity in construction to the level of British Columbia. Proposed initiatives include better training workers, breaking down barriers between regulated trades, funding automation, and streamlining approval and permit processes.
Another painful observation: Quebec is now at the back of the pack in Canada for business creation, and this lag is evident in professional, scientific and technical services. Consolation: Quebec is ahead of Ontario for investments in green technologies, all things considered.
To raise the bar, it is proposed to promote entrepreneurship in the education system, particularly in universities. In Boston, for example, programs exist to facilitate collaboration between students in technical programs and other programs (administration, etc.).
Research: the German model
With regard to research and development (R&D), the report finds that our tax credit system is complex, and mainly serves large companies. Thus, 3% of Quebec businesses alone absorb 90% of the tax credits.
In the Canadian system, 83% of R&D funding comes from tax credits rather than direct support, compared to 38% in the United States and 9% in Sweden. In Quebec, this proportion is 74%. “Direct aid helps to target champions in key sectors as well as projects with the greatest potential for economic contribution,” argues McKinsey.
The report praises the German model of Fraunhofer, which works by research contracts from companies. The German system is much better coordinated than that of Quebec, where the size of the R&D support organizations is far too small.
Another Achilles heel of Quebec, according to the report: its rigidity for the business world. The index of economic freedom, labor market freedom and ease of doing business is among the lowest among its major competitors. The costly tax system for businesses and what affects our social safety net (sick leave, maternity leave, etc.) is flayed.
According to McKinsey’s analysis, countries where it is easy to do business have more business creation. This is the case of more social countries to which we like to compare ourselves, such as Denmark and Sweden, but also of the United Kingdom. Productivity is also improved.
The report covers five of the sectors to focus on: energy, hydrogen, artificial intelligence, life sciences and agriculture.
Since the report was submitted in December 2021, the CAQ government has moderated its expectations of green hydrogen. And a pharmaceutical company has chosen to establish itself in Montreal for the manufacture of its vaccines, namely Moderna, which is in line with the objectives mentioned for the life sciences.
In the wake of the report, the CAQ government did not create a “transformation office” as McKinsey suggests, according to my information.
Nevertheless, the government is said to have adjusted its headline indicators, which would now be monitored during meetings, every two months, of senior officials from the Prime Minister’s Office, the Ministry of Economy and the Ministry of Finance, m we learn.
What do I think of it ? That Quebec has a lot to do to boost its productivity, as proposed, and thus catch up with Ontario. Over 15 years, this will be practically impossible, especially in the context of labor shortages, an aging population and a flawed immigration policy. But hey, any progress that would reduce the gap is welcome…