Québec’s economic development policy: a game of craps

Over the last week details of Québec’s multi-billion dollar subsidy to battery-maker Nothvolt have been made public. In a nutshell, the Québec and Federal governments are putting about $5.6 billion dollars (maybe more) into attracting the battery maker Northvolt to Québec.

As part of this sweet deal, the battery maker is not being subjected to environmental assessment. It will also get very cheap electricity.

There have been many comments on this. As expected, the government sees this as the foundation of Québec’s development and growth as a battery production centre (with an attendant eco-system that will develop around this corporation).

Critics (e.g. here and here) point out that this is hugely risky, that a company that can be attracted can just as easily leave, and that – at a cost of about $2 000 000 per job created – the money could have been better spent elsewhere (such as in repairing schools or propping up our ailing health system).

I’m afraid I agree with the critics.

The forgotten lessons of regional development

I happen to have written extensively on issues of regional development, so I have a depressing feeling of déjà-vu.

In the 1970s and early 1980s, the idea that one could promote a region’s development by attracting large outside employers was common.

For example, Volvo opened a factory in Halifax in 1963. It was always a modestly sized facility, and finally closed in the late 1990s.

Hyundai opened a factory in Bromont in 1988. It only lasted a few years, and closed in 1994.

Basically, large multinationals will remain in a place just as long as susbsidies and cheap electricity retain them. For the companies it makes perfect sense: but these companies are strategic enterprises, and will close facilities if they obtain a better deal elsewhere.

Doreen Massey detailed this for 1980s Britain, and it is is just as true today.

So, what lessons have we learned about regional development that our current government is willfully ignoring?

• corporations, especially multinational ones, are mobile. They open and close plants strategically. Northvolt will remain in Québec only as long as it cannot obtain better conditions elsewhere.
• it is extremelty difficult to pick winners. In this case our governments are betting $7 billion dollars that Northvolt is the right company, that it won’t get a better deal elsewhere, and that the particular technology it is developing will not be overtaken by another in the next few years.
• a region develops from the bottom up, not by seducing large corporations. Instead of pouring billions into a hugely risky venture, policies which nuture local start-ups, which build a system of insitutions (e.g. colleges, business advice, infrastructural support…), which nurture local culture and build-up a supplier networks, are far more likely to lead to long-term development. Rather than picking winners, support for a wider range of promising local companies, and sustaining the support as they grow, will have better long term results.

There is nothing bad about a large corporation choosing to locate in Québec because of its great workforce, equitable social system, cutting edge-research centres and attractive culture.

It is problematic if the only way we can attract corporations is by paying them to come. That money would be better spent nuturing Québec businesses, colleges and other institutions in a strategic way and over the long term.

International considerations

It could be argued that this multi-billion dollar subsidy has nothing to do with regional development. It is an industrial policy destined to position Québec on the world stage.

Maybe. But, within Canada and North America Québec remains a region, and the basic lessons learned from regional development still apply.

Furthermore, there is currently a subsidy war, partly fueled by the USA’s Green Deal, and partly fueled by the sheer size and power of large corporations. This has set up conditions for a race-to-the bottom as governments out-compete each other to hand over tax money, land and cheap energy to private investors in an effort to woo these powerful players.

Finally, there is nothing original about throwing huge subsidies at battery makers: it is the flavour of the month, and governments across the world are attempting to do so. The only winners are the companies themselves who shift most of their risk to the public sector whilst reaping rewards if things go well.

Economic development should not consist of high-stake bets

Québec is playing a high stakes game. It is betting a huge amount of money on a single throw of the dice.

If, miraculously, it pays off, this will look like a master move.

But economic development should not be a game of craps: it should be a thoughtful long-term effort to nurture a local climate and culture conducive to experiments, to innovation, and to supporting successful local companies as they scale-up and reach out to new markets.