Quebec Economy Sputters as Political Question Persists

THE biggest employer in this small town in Quebec has announced it is closing its plant; locals are blaming the departure of Clairol Canada Inc. on everything from free trade with the United States to Canada's constitutional crisis. Whatever the case, this and other plant closings in Quebec reinforce the underlying weaknesses in the economy of the province, where unemployment is almost double that of neighboring Ontario.

Layoffs and plant closings across Quebec have meant the loss of 51,000 of the province's 537,000 jobs in manufacturing in the past year. Unemployment in Quebec was at 9.3 percent of the work force in May, compared to 5.5 percent in Ontario.

``You don't have an overall recession in Quebec, but there is one in the manufacturing sector for sure,'' says Clement Gignac, an economist with the Montreal-based National Bank. He blames the weak manufacturing sector on high interest rates in Canada (the prime rate banks offer their best customers is 14.5 per cent) and the high value of the Canadian dollar (US$0.86) which makes exports expensive.

Clairol, a division of Bristol-Myers Squibb Company, will close its plant in Knowlton, about 60 miles southeast of Montreal, by the end of 1991, and move the equipment for making hair-coloring and other products to Stamford, Conn.

There was shock here at the news. The Knowlton plant had just undergone a major expansion and facelift. Locals, including Mayor Gilles Decelles, say the free-trade deal between Canada and the US meant there was no protection for the Canadian operation.

``Free trade had nothing to do with it,'' says Francine Gingras, an official of Bristol-Myers in Montreal. ``It's an international review of manufacturing capacity.'' The company is also closing a plant in Saddlebrook, N.J., to concentrate production in Stamford.

The Knowlton operation of Clairol wasn't just an ordinary branch plant. The Thornton's, a local family, had originally been owners of the Clairol plant and had worked on the research which produced Clairol's major product, hair coloring. The company was taken over in the late 1960s by Bristol-Myers, which in turn merged with Squibb last July.

``Free trade was obviously part of the decision, but it was mainly a reorganization of the market in North America,'' says Paige Thornton, vice president of the company until 1979. ``But overall, free trade has been good for Canada and good for this part of the country.''

Other problems in Quebec include a lack of capital for small and medium-sized companies. A provincial government program called the Quebec Stock Savings Plan used tax incentives to encourage investment in the publicly traded shares of Quebec-based companies. But in the market collapse of October 1987 the prices of most of the companies involved collapsed and have never recovered.

News of the Clairol plant's closing came a week after the effort to get all provinces to ratify the Meech Lake constitutional amendment fell through. This has created further uncertainty for investors from outside the province. The crisis over just how independent Quebec is going to become makes some investors stand-offish.

``When there's no assurance of stability, a manufacturer has a tendency to postpone,'' says Richard Le Hir, head of the Quebec branch of the Canadian Manufacturers' Association.

Quebec Premier Robert Bourassa will meet on July 5 with international bankers. Last week he met with Premier David Peterson of Ontario, Quebec's biggest trading partner along with the US. At home, Mr. Bourassa is planning a kind of `Estates General' or series of meetings to map Quebec's political future. Then, rather than haggle with the other nine provinces, a final plan would be presented to Ottawa.

THE bright spots in the economy are new construction projects for Hydro-Quebec, the government electric utility, and new aluminum plants, which rely on Quebec's cheap electricity.

And recently a British aerospace company, Dowty Group, announced plans to build a C$90 million plant at Mirabel airport near Montreal. The plant would build landing gear for the European Airbus passenger plane. But critics point out that the C$90 million investment was made only after a guarantee of C$36 million in grants from the federal and provincial governments.

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