The real issue for Quebec investors
Why the election of a PQ government is not likely to cause much movement in the markets.
Quebec sovereignty used to be a thriving cottage industry in the province. There was, in fact, an entire infrastructure geared to dealing with nothing but containing and commenting upon recurring threats that Quebec would separate from the rest of Canada.
But nothing is what it used to be. And that apparently includes the terror of separatism: upon the recent election of Pauline Marois and her Parti Quebecois government observers barely suppressed a yawn.
Granted, it's a minority government. That means that the brakes are on even before things get rolling. There's not much question that anything remotely radical would be squashed — that is if the factions within the PQ allowed a coherent consensus to form in the first place.
Even before a discussion of how Marois would pay for some of the key planks in her party platform (expanded daycare capacity and the repeal of tuition hikes among them) or how she plans to address the fact her province has the highest debt-to-GDP ratio in Canada, there are seven issues that trump every other consideration:
1. In the rock-paper-scissors of life, money smashes politics. A global economy means that capital is exceedingly mobile and will go wherever it gets a warm welcome and the conditions that allow it to grow. If money doesn't feel comfortable in a political climate it will move on quickly. And it may or may not bother to return.
In the case of Quebec, making it tougher for foreign investment, increasing mining royalties, introducing a more stringent French language law for companies and taking a bigger tax bite for high-income earners are hardly measures that will attract capital.
That means that while politicians may publicly profess not to care about financial markets, the competition for jobs and the investments that create them make it hard not to. The fact that Quebec has one of the lowest labour participation rates in Canada as well as a high per capita debt load, is hardly a solid foundation for a bully pulpit.
2. Money doesn't scare very easily any more. The response to the PQ election was almost negligible because the market had accurately discounted the outcome in advance. And after the extreme upheaval and uncertainty of the past several years, it doesn't get rattled very easily.
3. If political leaders lack the will or the intent to keep the books balanced, the bond market will do the work for them. Nothing focuses a mind on the need to reduce deficits and debts more efficiently than a sharp uptick in the price of borrowing money.
4. Given money's aversion to uncertainty, minority governments are not terribly popular. The need for constant compromise and negotiation means that decisions take time and effort. Outcomes become unpredictable and opaque because they are brokered behind the scenes and frequently require trade-offs. That leads to a highly inefficient process at a time when efficiency and transparency are highly prized.
5. Minority governments are fragile babies that seldom live much beyond 18 months. In other words, businesses have to live with uncertainty around the rules and regulations that govern their operations and inform their decisions. As a CEO, you're hardly likely to implement big changes based on the policies of a government that can be ousted or overturned on short notice. Minority governments, after all, seldom please anyone sufficiently to last.
6. Even so, 18 months of minority government dithering and lost momentum can be a serious drag on productivity and competitive advantage.
7. At a time when immigration is considered the key to growth and renewal (especially in the province with the fastest-aging population), uncertainty combined with onerous language laws and higher taxes on top earners are hardly a magnet for those seeking a new home and a brighter future.
Quebec's motto is Je me souviens, a reference to the fact that its residents are firmly rooted in a distinct past and its cultural legacy. The past and its many lessons may always be important considerations, but it's hazardous to ignore the future.
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