Quebec Wields Financial Power

STATE CAPITALISM

QUEBEC is a society which likes to think of itself as "distinct." And, indeed, business and finance do have a distinct flavor in Quebec: In no other part of Canada or the United States does the government have so many fingers in the economic pie.

The prime sources of that influence are the Caisse de depot et placement du Quebec - which includes the Quebec government pension fund - and the Caisse Populaires - the government-influenced credit unions that function as a giant bank.

These are Quebec's most powerful financial institutions. They are also among the most French and reflect Quebec's growing economic confidence and a way of doing business that is not in the North American mold.

The Caisse de depot controls $37 billion (Canadian; US$31.8 billion) in money held by government entities such as the pension funds and the government-operated automobile insurance plan.

While a percentage of the funds is invested in treasury bills, government bonds, mortgages, and other fixed-income securities, the Caisse de depot also has 28 percent of its total investments in the shares of Canadian firms.

In particular, it takes equity positions in Quebec-based firms, influencing their direction and that of the Quebec economy.

"It is a form of state capitalism," says Stephen Jarislowsky, a Montreal investment manager. "The government made the decision to create a giant pool of money and use that money to influence the provincial economy."

The provincial government also owns Hydro Quebec, the giant electric utility, giving government an all-important role.

"In effect, the government controls more than half of the provincial domestic product," says Mr. Jarislowsky, who is also a director of the Quebec Pension Fund, part of the Caisse de depot. "If you want to do business here, you eventually have to deal with the government."

A list of investments by the Caisse de depot shows how it can influence local companies.

The Caisse, for example, is the largest shareholder in Alcan Aluminium, the huge aluminum company with its head office in Montreal.

"Until 10 years ago Alcan was basically operated in English. Today the upper management operates in French and the firm definitely has a more Quebec face," says a Montreal executive who asked not be named because of his business dealings with Alcan.

The fund is also a large shareholder in Air Canada, the airline formerly owned by the federal government, which has its head office in Montreal.

The Caisse has more than a billion dollars invested in the shares of BCE Inc. (Bell Canada) and its subsidiary, Northern Telecom. Its holdings in Air Canada, BCE, and other large Montreal-based firms could discourage the exit of head offices from Montreal, a pattern that started with the election of separatist politicians in the 1970s.

"The Caisse de depot has had a very positive influence on sustaining the economy of Montreal," says Carl Otto, a Montreal investment manager. "It is a very well-run organization."

THE prospect of a separate Quebec poses some possible problems. Pierre Pettigrew, an international trade specialist with the firm of Samson Belair Deloitte and Touche in Montreal, says politicians in favor of an independent Quebec say the province would automatically retain the advantages of the free-trade pact that Canada made with the US, starting in 1989. He isn't so sure.

In a recent speech he said if a sovereign Quebec had to renegotiate the free-trade deal, the American negotiators might question Quebec's interventionist approach to the economy though state agencies such as the Caisse de depot and Hydro Quebec. They asked similar tough questions during the talks with Canada.

The Caisse Populaire, a network of depositor-owned credit unions, dominates banking in Quebec. In a province of 6.7 million people, there are 4.9 million members of Caisse Populaire.

The independent Caisse Populaires were started at the turn of the century by Alphonse Desjardins. They sprouted in every village and city in the province. They are now formed into an association called Mouvement Desjardins, which has total assets of C$48.2 billion and does 60 percent of the banking business in Quebec.

"English Canadians dominated the banking system and this was a way for the French-speaking Quebeckers to control their savings," says Jarislowsky.

The Caisse Populaires have no dominant shareholder.

But the elected head of the Mouvement Desjardins, Claude Beland, has taken an activist stance in Quebec politics that no regular banker could ever do. Mr. Beland is an outspoken proponent of an independent Quebec.

"We [Quebec] have to be an independent state," says Beland, who rules his financial empire from an office in Place Desjardins, a high-rise tower in downtown Montreal owned by the Mouvement Desjardins.

Like the Caisse de depot, Beland and the Mouvement Desjardins make investments with one eye on the return and the other on Quebec's economy. The money from the Caisse Populaires across the province is invested in many medium-size firms operating in Quebec.

Beland is proud of his groups' performance. "We had an excellent year," he said while reporting a 11.6 percent increase in profit to C$390 million for 1990.

The Caisse de depot funds managed only a meager 0.5 percent return during 1990.

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