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The position of Montreal and its regional economy in the economic space of North America, and indeed the world, has experienced considerable change during the past three decades. This is the result of: 1) a series of events in the evolution of the global economy and 2) specific policy initiatives. The most recent and powerful of these has been the advent of the process of globalization, that is, of trade liberalization and changes in the technologies of production, transportation and communication. Montreal has lost its historic position of primacy in the Canadian economy and has become a second-tier urban economy in North America. All cities have been affected by these changes and the result has been a competitive struggle as each city tries to discover a role or function for it in the global hierarchy of cities.

Since almost all cities are going through a similar process of discovering their most effective vocation in this new environment, Montreal will face considerable competition in its efforts. For this reason the metropolitan leadership, in both the public and the private sectors, will have to be clear on the city’s real advantages and handicaps, on what is realistically possible, and on what specific policy steps should be take so as to ensure success.

1. The contemporary context of urban economic development.

In explaining the contributory factors in the process of urban economic development we must take into account several important elements, both internal and external to the city that is the subject of the experience.

·  First, is the liberalized international or global context in which the city must function. During the past two decades the most powerful force here has been trade liberalization - that is, the reduction in the tariff and non-tariff barriers to the international exchange of good and services. Tariffs have been reduced to insignificance in the vast majority of SIC categories. Services and agriculture have been the two most intransigent sectors but it is expected that the next round of the WTO talks will tackle both of these areas. Of equal importance has been the initiatives at the regional level, both among the developed economies of North America (the North American Free Trade Agreement) and Western Europe (the European Union) but also in most parts of the world. The consequence of this freeing of the movements of goods and services is to dramatically increase the "potential economic space" in which an individual city is situated. Conscious implementation of trade liberalizing policies has opened all markets to new competitors located thousands of miles away. Canadian cities face competition not only from other urban economies in North America but also from scores of them in Europe, Asia and Latin America. Concomitantly, they have new opportunities to penetrate these same distant markets.

·  Second, are the changes in the technologies of production, communication and transportation that have made it possible for urban economies to actually realize, or to make operational, this potential economic space. Technological change in production has made it possible to lower the efficient scale of production, that production at which all significant economies of scale can be gained, so that, for example, steel can now be made in mini-mills rather than in the enormous "Fordist" production of Pittsburgh, Gary and Hamilton. This has forced producers to reconsider the advantages of agglomeration, clustering and industrial districts, as well as the relative advantages for specific production activities on the periphery as opposed to the center. It gives many cities the chance to plan their economic development with an entirely new set of possibilities before them.

Developments in the technology of communication (satellite and fiber optic communication as well as the use of computers) enable the effective coordination of economic activity to be accomplished from every greater distance. This allows for he separation of command and production sites and a reconsideration of the location of decision-making centers. A city, such as Montreal, that is rich in the urban amenities that are attractive to skilled professionals and senior management can make this work to its advantage.

Finally, developments of cheap air and sea transportation, computer coordination of rail traffic, expansion of truck transportation, and effective inter-modal shipping have greatly reduced the 'cost-distance' between urban economies. In terms of the cost of shipping one ton of goods, Montreal may be equally positioned between London, England and London, Ontario. Again, a new set of opportunities, threats, and challenges for all cities and their economies.

• Third, deregulation of financial and other markets has destroyed the existing hierarchy of financial cities and opened this sector to an aggressive form of competition. In the United States, Chicago's largest banks have been purchased by banks and financial holding companies in Montreal and other cities in the United States. Cities such as Charlotte, North Carolina have come from nowhere to be among the financial centers of the country. Wilmington, Delaware, has become the center of the credit card sector of the industry. New York still reigns supreme as a global financial center but below it the rankings have been in a stage of flux for a decade. While the Montreal Stock Exchange was Canada’s first, having been established 125 years ago, the MSE has been losing business to Toronto and it now trade less than ten per cent of Canada’s total. It is likely that Montreal will give up stock trading entirely and move into other financial products.

• Fourth, is changes in the balance of power, responsibility, and decision-making authority between the national and urban levels of government. Throughout the industrialized world, national governments have chosen to give up some of their powers. In part this has been the result of negotiated agreements to open markets to foreign competition; in essence a process whereby the national government gives up its capacity to intervene in economic outcomes in response to pressure from negatively affected constituents. A second reason for devolution has been the desire of central governments to reduce budget deficits and national debts and to introduce neo-liberal strategies to reduce the role of government in general. In many countries central governments have mandated programs but left the financing to sub-national levels of government. In North America, the term for this, when applied to state/provincial governments, used to be “fiscal federalism;” in the European Union the term “subsidiarity” is now used to the allocation of tasks among all levels of government, with the emphasis being placed on tasks being accomplished by the lowest level of government that can effectively accomplish the task.

In Canada a variety of political and ideological issues have dominated discussions between the federal and provincial governments. Each of these issues, in addition to relating to a superior level of government, is far too complex to be examined in this paper, but they do provide a context for discussion of the emerging role of metropolitan governments in economic matters.

• Fifth, in this context we can witness the emergence, throughout the global economy of a new municipal activism. This is effectively captured in the title of a 1994 conference of the Organization for Economic Cooperation and Development, “Cities in the New Global Economy.” Formation of the Euro-Cities movement in the 1980’s gave municipal governments throughout Europe a structure through which they could meet to discuss common problems, seek solutions to them, and develop a lobbying effort in both national capitals and the agencies of the European Union. A similar but somewhat less politically active organization, Metropolis, was formed in Montreal about that same time for large cities throughout the world. In the United States, cities tend to be competitors rather than participants in cooperative ventures, but organizations such as the National League of Cities and the Conference of U.S. Mayors have become somewhat more engaged and active in recent years, as has, in Canada, the Federation of Canadian Municipalities and, in Quebec, l’Union des municipalitiés du Québec and l’Union des municipalités régionales de comté et des municipalités locales du Québec.[1]

All of these institutions have experienced increased activism by their member municipal governments because of the transfer of responsibilities from the national to municipal level. Cities have become much more engaged in “municipal diplomacy,”[2] in strategic planning, and in joint problem discussion and solving as they have come to recognize that the economic future of their residents in increasingly in their hands.

• Sixth, one cannot overemphasize the importance for the process of urban economic development of the development of and shift to the tertiary or service sector. The earlier evolution from agriculture to manufacturing had powerful impacts on all aspects of society and the economy; the next step, currently underway, from manufacturing to services promises to be equally disruptive. Each of these transitions has given rise to new demands for labor skills, housing, transportation and communications infrastructure, and so forth. Manufacturing focussed activity not just on urban agglomerations, but on cities situated near ports or rail centers, crucial inputs and markets. This was certainly beneficial to Montreal and it rose to industrial dominance during the nineteenth century and well into the Post-World War Two period.

In a services dominated economy, these traditional sites of economic activity will no longer be privileged. The importance of distance will have to be reconsidered, flexibility in all aspects of economic and social in institutions will become essential, and cities will have to ascertain their new competitive advantages and the niches in which they can find success. Due to the needs of the service sector for personal contact between buyer and seller and among individuals in all aspects of the industry (the city as “center of interaction”), the positive labor market aspects of agglomeration, and the need for the highly skilled elements in the working force for urban amenities, the provision of higher order services will probably always be an urban function.

2. The positioning of Montreal.

The economy of Montreal has evolved substantially during the post-W.W.II period. In this section of the paper we will examine those aspects of this development that can be related to the discussion thus far. This examination will be composed of two distinct elements: exogenous factors (policy decisions and geo-structural changes) and strategic decisions.

·  The impact of exogenous factors. The evolution of North America's economic geography has not been kind to Montreal, or to the continent's other traditional economic centers, during the past three decades. While some of this evolution has been the result of forces over which it was not possible to exercise any control, others were the result of deliberate policy initiatives. The St. Lawrence Seaway is an example of the latter. Opened in 1959, this was a project for which Canada was very keen and the United States was a somewhat reluctant partner. The initial impact was to allow shallow drafted ocean vessels to continue on through to the Great Lakes for such bulky cargoes as grain and ore. This was a negative factor for the port of Montreal as it was no longer necessary to unload there and to continue inland via rail. Only decades later was the channel to Montreal deepened to allow deeper draft vessels to sail up the St. Lawrence as far as Montreal. In recent years the port activity has recovered somewhat. Two other policies that had a negative impact on Montreal were the changing of landing rights for trans-Atlantic flights in the 1960’s and the National Energy Policy in the 1970’s.

A phenomenon over which it was not possible to exercise any control was the substantial shift of economic activity to the west and the south in the Canada-US economic space. Toronto, Calgary and Vancouver have all experienced significant growth since the 1970's and the US south and west have benefited at the expense, at least during the 1970’s and 1980’s, of the industrial triangle - Boston-Milwaukee-St. Louis. The primary consequences of this shift have been: relatively lower rates of population growth, personal incomes and manufacturing employment, and the development of new financial centers in the newly deregulated environment. All of these regions have had their share of expansion and contraction so this does not mean the secular decline of the industrial triangle regional economy, but rather it forces metropolitan and state/provincial governments to consider their future and to implement strategic plans to restructure their economic activity.

For Montreal this has brought a deterioration in status as Canada's national center of financial and corporate activity and decision-making and the city has been forced to accept a redefinition of its role to that of a second-tier regional economic and financial center. As data in the next section shows, Montreal has slipped to second place, behind Toronto, as a corporate headquarters location. The Bank of Montreal and the Royal Bank have transferred their senior executive offices and many functions from Montreal to Toronto. This pattern is replicated in many other areas of economic activity.

The single most significant policy initiative to affect Montreal's economy has been the decision to implement a free trade agreement with the United States. One of the most powerful impacts has been that of making it clear that Montreal's economic future lies in a north-south rather than an east-west orientation of its trade and other economic linkages. We will discuss this in greater detail below, but it must be recognized that this has come at the expense of aspirations to be a "bridge between North America and Europe" and of its economic connections with the markets of Ontario and other Canadian provinces.