The Montreal skyline is dotted with construction cranes as an unprecedented building boom continues to unfold in condo and office construction. On the surface, at least, signs of prosperity abound.
But look a little deeper and you’ll see a city that’s slipping behind the rest of the country.Over the last decade, Montreal’s economy grew by an average of just 1.5 per cent — the lowest rate among Canada’s major cities. Personal disposable income is also the lowest among the country’s eight biggest cities, and unemployment is among the highest.
The bad news doesn’t stop there. Montreal is living through a period of crumbling infrastructure, widespread corruption, failed governance, inadequate fiscal power, low private investment, an exodus of head offices and an outflow of people.
Even the real estate activity that’s dominating private investment in Montreal these days is of some concern to economists. They point out that it’s largely speculative and does little to improve productivity, innovation or the knowledge base of the local economy.
We’re starting to see the long-term cost of the city’s economic decline. What if Montreal had simply kept pace with the Canadian average over the last 25 years?A November report*from the*Institut du Québec, a research group started jointly by the Conference Board of Canada and the HEC Montreal business school, found that if the metropolitan area had grown at the Canadian average since 1987, per capita income would be $2,780 higher today and income for the province as a whole would be up even more.
“Despite its strengths and obvious attractions, Montreal suffers from major economic shortcomings compared with Canada’s other large urban areas,” said the report. “It fails to adequately fill its role as driver for the provincial economy.”
That role becomes more important in a global economy that relies on cities as engines of growth. We are witnessing intense competition between cities for capital, talent and ideas — a race that risks leaving Montreal behind.
Montreal’s economic heyday
At the dawn of the 1960s, the case could still be made that Montreal was Canada’s business capital, even though Toronto was gaining fast. A black-and-white snapshot of the city’s economy looked like this:
Perched at the top was a thriving financial industry, driven by banks, insurance companies, stock exchanges and investment brokers. The city was home to the head offices of the Bank of Montreal and the Royal Bank of Canada, as well as insurance giant Sun Life. Both the Montreal Stock Exchange and the Canadian Stock Exchange served a large community of brokerage and investment firms. A big part of the picture was a broad network of head offices in Quebec’s natural resource industry.
Farther down the chain were the factories that made Montreal hum: metal and machinery plants, appliance manufacturers and rail-equipment makers, food processors and cigarette plants. The so-called soft sectors of the manufacturing industry were thriving in the days just before Asian imports began. Montreal was Canada’s leader in clothing, textiles, leather and shoes, with the industry*providing*well over 100,000 jobs.
The St-Lawrence Seaway opened up the shipping industry through the Port of Montreal while the city served as headquarters for both Canadian National and Canadian Pacific Railways. When the stylish Place Ville Marie office tower – developed by William Zeckendorf and designed by architects I.M. Pei and Henry N. Cobb – was completed in 1962, it seemed to symbolize a new optimism for Montreal.
What followed instead were decades of underperformance in which the city never fulfilled its promise. The head office operations of the Bank of Montreal and the Royal Bank gradually shifted to Toronto to take advantage of that city’s impressive growth as a financial centre. Political tensions over language and the issue of Quebec sovereignty hurt private investment and drove some of the wealthiest and best educated people out of the province. Sun Life left in a huff in 1978 after the Parti Québécois took power for the first time.
The Canadian Stock Exchange closed its doors in 1974, while the Montreal Exchange lost increasing trading volumes to its Toronto rival before switching its vocation to financial derivatives. The fancy new airport built in Mirabel didn’t take off as promised, with Toronto becoming the hub for Canadian air travel. At the same time, the city’s aging industrial base felt the first effects of globalization as imports from Asia began to hurt the textile and clothing industry.
The Montreal economy tried to reinvent itself and got a boost from free trade in the 1990s. Industries such as aerospace gained in importance thanks to the success of aircraft maker Bomabardier Inc. while investment also picked up in pharmaceuticals and information technology.
But as the new millennium began, more negative trends had crept in: offshoring, outsourcing, contracting out. Companies had found new ways to cut costs by sending work to places like China, India and Mexico at a fraction of local wage rates. More industrial plants began to shut their doors.
Failures along the way
Economist Mario Lefebvre, president of the Institut de Développement Urbain du Québec, points to a number of failures along the way. Perhaps the biggest, he says, is Montreal’s inability to adapt its transportation network to the new realities of the global economy. The airport, the port, the rail network and the highway system need to work seamlessly together.
“Goods and services are not produced in one place anymore, those days are gone,” he says. “Step one might be in Brazil, step two in Chicago, step three in Montreal and step four in China. To be a player in this kind of environment, goods and services must be able to come in and out of your city quickly.
“We have all the means of transportation but the fluidity between them is still very complicated. There are too many decision-makers involved and we end up with projects that are not completed as rapidly as they should be.”
The city’s aging industrial base remains vulnerable because it hasn’t closed the productivity gap with other jurisdictions. “We have educated people,” says Lefebvre, “but we haven’t surrounded them with state-of-the-art technology.” The private sector hasn’t done its part to renew the city’s industrial base with new machinery and equipment. And with a low rate of investment in research and development, innovation in Montreal has lagged*behind*the rest of the country according to measures such as the number of patents per capita.
One of the biggest obstacles facing Montreal is its low rate of population growth. Among the country’s eight biggest cities, only Halifax had a lower rate of growth over the last 10 years. Montreal’s population grew at an annual average of one*per cent, vs. 1.6 per cent for Toronto and nearly three*per cent for Edmonton and Calgary.
The low birthrate and the low rate of immigrant attraction explain part of the trend. But perhaps most serious, according to the Conference Board, is that on average more than 16,000 people a year leave the metro area for other parts of Quebec or other provinces and countries.
Just holding on to that number of people each year would have added more than 450,000 to the population over the last 30 years. That would have meant more people working, paying taxes and spending money on housing, goods and services. It would have given a real boost to economic growth.
So would have a stronger commitment from the provincial government to help Montreal. Lefebvre points out that the Quebec government has been pushing a Plan Nord strategy to develop natural resources in the northern regions, but what Quebec really needs is a Plan Sud that helps Montreal develop its knowledge-based economy.
The payoff would be so much bigger, he argues, not only for the city but also for the province. A dollar of additional economic activity in Montreal generates at least another dollar for the province in spinoffs and benefits. Montreal funds more than half the government’s spending, 53 per cent of provincial GDP and more than 80 per cent of all research and development.
Along with a Plan Sud, the government should at last recognize that Montreal needs new tools to manage its economy, Lefebvre says, including new fiscal resources and powers to promote investment, integrate immigrants and train workers. The property tax base has reached the limit of its ability to fund those new services. While such legislation has been promised, it’s not yet clear how much real power will be conferred on Montreal.
The federal government has a role to play, too, Lefebvre argues. “I think we wasted an incredible opportunity when the GST was reduced by two percentage points (in 2006). A GST point is worth about $7 billion. If we had given just one point to the cities for infrastructure, that would have meant an extra $50 billion to $60 billion for infrastructure over the last eight years.”
Fighting the exodus
The city has suffered other blows. One is the decline in the number of head offices that call Montreal home. Between 1999 and 2012 Montreal lost nearly 30 per cent of its head offices, according to an estimate by the Institut du Québec. Toronto suffered a five-per-cent loss as economic weight shifted to Western Canada, but the impact on Montreal was far more painful.
“Head office jobs are important for the indirect impact they have,” said Jacques Ménard, president of BMO Financial Group in Quebec. Head offices support a range of activities like legal, financial, accounting and advertising services. They maintain high-quality, high-income jobs and provide the city with a measure of economic influence.
Part of the solution is to create more such companies in Montreal in the first place, Ménard says. Quebec is suffering from a deficit in entrepreneurship and can’t expect to replace these corporate losses without growing new success stories. “If you look at a company likeStingray Digital,*it didn’t even exist seven years ago. It’s now in 110 countries,” Ménard says about the Montreal-based provider of digital music services. “I’m on the board of directors and I have seen the company grow to where it now has 200 high-paying jobs in its headquarters.”
Along with the head-office challenge, Montreal is looking to become a more international place to do business, taking advantage of its multilingual and multicultural assets and its potential position as a gateway to the Americas for European and Asian trade and investment.
European firms already have a significant presence here and now “there is a ton of money looking to leave Asia for investment diversification,” says Dominique Anglade, who heads the economic development agency Montreal International. Asian money represents a big potential opportunity for the city as it tries to sell itself internationally and attract both investors and professionals from abroad.
People are eager to come here, she insists. “We had 300 openings on the last recruiting mission we did in Europe and for those openings there were 13,000 applicants. There’s a phenomenal attraction power, especially for workers who are educated.”
Still, it’s not easy for companies and professionals to move here. Companies are often deterred by the weight of regulation and red tape in Quebec while professionals face barriers such as the recognition of their credentials or concerns about French-language requirements and schooling.
When 50 top executives were interviewed last year by the Boston Consulting Group on the challenges facing Montreal, several said that the emphasis on French in the immigrant selection process restricts the pool of talent on which Montreal can draw. They argued it would be better to cast the net wider and invest more in French language promotion rather than in defensive measures.
Digging ourselves out
At Ménard’s request, the Boston Consulting Group looked at the experience of other cities that suffered*economic difficulties and how they managed to turn around.*The report*focused on cities such as Pittsburgh and Philadelphia in the U.S., Manchester in Britain and Melbourne in Australia. All have made impressive comebacks, owing largely to two common factors: a high degree of citizen engagement and a focus on infrastructure projects that have made those cites better places in which to live and work.
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It’s one reason Ménard launched his*Je vois Montreal initiative*last fall in an effort to get citizens rather than governments engaged in the process of building a better Montreal.
“We’ve had so much of the top-down approach — ‘We know what’s good for you,’ ” he says.
“Yes there is a role for governments, but communities really thrive when citizens take ownership of their future.”
Je vois Montreal has launched more than 100 projects to get the city moving again. While they are not heavy on investment or job creation, they do herald a significant change in the mindset of many Montrealers who are simply fed up with the status quo.
