Volume 50, numéro 3, juillet–septembre 1974 Montréal : problèmes de croissance et éléments d’une stratégie de développement Sous la direction de Dominique Achour

EN :

There are definitely signs of economic difficulties in the Montreal area. The growth of population, the rate of unemployment, the productivity of its manufacturing industries, the exodus of head offices of major financial institutions and corporations and several other key indicators of economic growth suggest that the Montreal area has been going through a profound economic malaise. The basic question one might raise is whether such economic difficulties reflect a secular stagnation or merely a cyclical recession. This paper is addressed to this question.

This paper's thesis is that economic difficulties and the loss of economic supremacy of Montreal are not a matter of cyclical recession and that they are the consequences of a secular stagnation which began as early as 1970's. Started originally by fur and wheat trade and, later, by the trade of iron ore and other minerals, stimulated by railroad and telecommunications, Montreal largely dominated Toronto until 1920's. However, during the decades that followed, while Toronto was taking advantage of the westward shift of economic frontiers in the United States and was rapidly adopting its economy to changing economic conditions, Montreal was unable to readjust its industrial structure to new market and technological requirements. As a result, Montreal has been loosing its traditional market in the West as well as in the Atlantic provinces and the economic gap between Toronto and Montreal in favor of the former has been widening ever since. This is illustrated well by the evolution of the value of building permits.

In short, recent economic difficulties in the Montreal area reflect a secular stagnation of its economy and are not the result of a cyclical recession. In light of these considerations, it is clear that needed remedies require something much more then policies applied so far by the government.

EN :

The main features of the manufacturing industries in the Province of Quebec are well known. Those industries are heavily concentrated in the Montreal area. They sell an important part of their output outside the Province. They exhibit structural weaknesses. Their importance in the Canadian economy has been declining in the past 25 years.

We should not be too optimistic about the situation since 1971. Some officials claimed that the Province has known a new start in the manufacturing sector but the statistical facts do not confirm such a view.

The Province therefore needs a really new strategy. The article tries to outline some of the constraints and features of this new strategy.

EN :

This impact depends upon changes in trends of certain economic activities both in the short and long run.

In the short run the impact will be different in Canada as compared to the United States. The presence of a large hydro-electric capacity will ease the impact of the crisis. Yet, the federal government intervention in the level of oil prices and in the construction of the Sarnia-Montréal pipe-line introduces enough uncertainty to postpone many investment decisions in the Montreal petrochemical complex.

In the long run some substitution is possible among sources of energy. In this respect the future Bay James hydro-electrical project should endow the Province of Quebec with a locational advantage, at least in the case of some industries.

On the other hand, under the hypothesis that the price of foreign oil will remain high, Montreal looses one of its advantages: the access to cheap oil. This coupled with the fact that the petrochemical industries, e.g., those linked to secondary refining processes such as cracking, reforming and alkylation, prefer a location near the market, will in the long run reduce the rate of growth of the petrochemical complex near Montreal. The market forces are so strong that even before the crisis, Montreal, from 1960 to 1973, experienced a gradual weakening of its relative importance in the secondary stages of refining; for instance in alkylation its position went from 57.3 p.c. of total Canadian capacity to 16.8 p.c.

If the hydro-electric potential is not used by the Province of Quebec as a development tool, the oil crisis will slightly hurt Montreal's prospects for development.

EN :

This article presents summarily the tourist resources and equipment available; the mechanism through which tourists are informed and received; data on the number of tourists (with a forecast) having come to Montreal and the Province of Quebec; information of congress, Expo, the Olympic Games; the expenditures of tourists; the employment and income creation attributable to tourism. It concludes with suggestions to the effect that a multidimensional inter-departmental approach be taken to deal adequately with tourism.

EN :

This paper which reflects the methodology and the findings of a larger study present a regional analysis of the Canadian financial sector. It denotes an historical tendency towards overconcentration of financial institutions and activities in Toronto which emerges more and more as the only financial center in Canada. Financial intermediation is weakening in other parts of the country (British Columbia excepted), particularly in Quebec to which this article devotes most of its attention. The study of the interrelation between the financial sector and industrial activity strongly suggests that the absence of an active financial sector in a region, which has reached a stage of development comparable to that of Quebec, constitutes an impediment to a balanced economic development of that region. This result is strengthened when the output of a financial sector is enlarged to two jointly produced goods, capital and information, and when the information and transaction costs involved in the production of those two goods are taken into account. The main conclusion of this paper is that there may be conflicts between the pursuit of the greatest efficiency per se of a financial sector and the pursuit of the greatest efficiency in regard to economic development.

EN :

The objective of this paper is to describe some important gaps in the Montreal financial community. These gaps are examined in turn from the points of view of the small investor and the small business.

The investor with 50,000 dollars to invest does not currently receive unpartial financial advice from existing financial institutions, due to the latters' roles as financial intermediaries as well as advisors. There is a need for a government supported agency which would act as a buffer between investors and intermediaries, would buy the services of the professional consultants, and then relay this expert advice back to the investor.

The gaps concerning the equity financing of small new business are detected by means of a survey of Montreal small firms, the results of which indicate that venture capital does not satisfy the equity needs of new firms in stage zero of development. Interviews with five venture capital firms confirm these observations and further classify the gaps along five dimensions, leading to five types of gaps: stage of development, industry, location, information and communication. Here too, a public agency could successfully fill these gaps of venture capital. An example of the action of such an agency to help start a new business is described and serves as conclusion.

EN :

The financial model presented in the article attempts to further integrate capital budgeting into the firm's overall financial planning policy. Although it is an extension and generalization of Bernhard and Weingartner's previous models, it differs from these works by some basic assumptions related to both the objective function and constraint set.

First, the objective function stresses the growing role of managerial discretion as opposed to the common assumption of maximizing shareholders' wealth. In particular we assume that managers wish to maximize the size of the firm under their control at the end of some future time horizon. Since net cash flows of the investment projects selected are sources of future investment funds, the managers try to keep the shareholders' dividends to a minimum level, sufficient enough however to pacify them.

Secondly, the model constraints embody the complete set of financial instruments available to the corporation managers: in a sense, this enlarges the previous models' short-term external financing facilities by considering simultaneously the alternative long-term external financial instruments, namely equity and bond issues. In the latter case, the refunding features are incorporated in the constraints. The constraints also imply that managers prefer steady growth of net cash flows through time. This contrasts with the usual maximization approach which has been shown to favor long-term investment projects with somewhat more erratic net cash flows.

The derivation of the Kuhn and Tucker conditions for the model allows us to show the impact of the opportunity cost of the various instruments on that of the liquidity requirement and the investment projects selection criterion. Finally, the duality properties also highlight the reciprocal relationships existing between the various opportunity costs, both internal and external.