Quebec Unions Push to Stifle Entrepreneurship and Investment

With Quebec already struggling desperately to attract entrepreneurs and investment, the latest salvo fired by union leaders in an ongoing battle against Wal-Mart should send chills down the spine of any anyone considering launching a new business in Quebec.

Wal-Mart’s recent decision to close its Tire and Lube Express outlet attached to its Gatineau store has outraged the United Food and Commercial Workers’ Union (UFCW), which is now arguing that the closure violates workers’ rights and is calling on the Quebec government to force unionized shops to stay open.

But any move by government that forces businesses to stay open regardless of the owner’s reason for wanting to shut down would create a major barrier to entrepreneurship and be detrimental to creating a dynamic and prosperous economy.

In closing the Tire and Lube Express, Wal-Mart is simply exercising its right to determine the fate of its own business. Workers at the Gatineau shop were recently unionized and a collective agreement that included a 33 per cent wage increase was imposed by Quebec’s Labour Relations Board. Wal-Mart determined that the significant price increases required to cover increased labour costs would run counter to its low-price mission and is therefore, closing up shop.

Wal-Mart made a similar decision in 2005, when it decided to close the doors of its Jonquiere store. While lower courts in the province have sided with Wal-Mart, deciding that businesses are within their rights to close their doors, a final decision awaits in the Supreme Court of Canada.

What’s at stake is a legal precedent that would allow the Quebec government (i.e. Labour Relations Board) to force businesses to stay open if they become unionized. In other words, the government would have the ability to exert a tremendous amount of influence over the fate of businesses rather than relying on businesses themselves to decide whether labour costs, lease payments, market demand, and other factors make the venture worthwhile.

Critically, creating such a barrier to business termination is a disincentive to open a business in the first place. Providing the Quebec government with this type of power over businesses will stifle the incentive for entrepreneurs and investors to start, expand, and invest in new businesses. The process of starting a business is one of the most important aspects of a dynamic and prosperous economy. High levels of business creation lead to reduced prices, increased quality, better service and greater levels of innovation.

Joseph Schumpeter, one of the most respected economists in the 20th century, famously described new business creation as “creative destruction” whereby new businesses replace existing firms that are no longer competitive. He argued that new firms are able to replace existing firms because they bring new ideas, innovations, products, processes, and lower prices to consumers. Impeding this evolutionary process will lead to less dynamism in the economy and ultimately less economic progress and a relatively lower standard of living for citizens of Quebec.

Unfortunately, Quebec already has a dismal record when it comes to starting new businesses. The province ranks dead last in Canada, and 54th out of the 10 Canadian provinces and 50 US states in terms of the number of new businesses created.

Quebec also ranks poorly when it comes to the dynamic process of new firms replacing existing firms. In terms of this “net” business creation, Quebec ranks only 5th in Canada and a dismal 51st in North America.

In short, Quebec struggles to create new businesses and has one of the least dynamic economies in all of North America.

Quebec has low rates of business creation because it simply has not created the right environment to attract business investment. In fact, the province has one of the worst investment climates in North America. Instead of considering another ill-advised decision, the province should focus on policies aimed at higher rates of economic growth and prosperity (i.e. pro-growth tax policy and less prescriptive labour regulation).

Quebec cannot afford to make entrepreneurial activity and investment in the province even less attractive. A legal decision that forces businesses to remain open will only worsen the dearth of dynamism in the Quebec economy and push the province further down a path of uncompetitiveness. It is critical for Quebeckers, and all Canadians, that Quebec steers clear of this disastrous policy.