Quebec's Asbestos Gamble

Quebec's decision to expropriate an asbestos corporation controlled by a U.S. firm represents a new and potentially effective strategy to promote the government's policy of prosperity through economic nationalism. But the expropriation bid, which was scheduled to enter formal proceedings on January 14, may be the right move in the wrong industry. The future of asbestos is uncertain as a result of increasing awareness of health and safety hazards associated with its processing and use. The province could be embarking on a strategy that pits job creation against the health of citizens as workers and consumers.

The move against Asbestos Corp., 54-percent owned by the U.S. multinational General Dynamics, must be viewed against a background of economic stagnation in the province, and growing dissatisfaction with the performance of foreign firms.

Today, the main worry amongst Quebecers is jobs. The province now faces an unemployment rate of I I percent, the highest in nearly 40 years. In 1978 the economy generated a mere 50,000 new jobs, an increase of only 2 percent. According to government officials, stagnation is particularly severe in the manufacturing sector, as corporations continue to exploit Quebec's resources without locating processing facilities in the province.

A recent report by Canada's Foreign Investment Review Agency indicates that multinationals remain reluctant to develop manufacturing operations in Quebec. Since 1974 foreign corporations have channeled 70 percent of their $ 1.1 billion in new investments into the mining sector. This pattern of foreign activity, coupled in recent years with a general slowdown in investment by the private sector, has resulted in the record unemployment levels. In 1978, private capital investment stood at $11.3 billion, a nominal increase of 4.7 percent over 1977, but a drop in real terms.

Asbestos Corp. may be considered a pacesetter for this trend. While the company has accounted for 5 percent of General Dynamics' sales since 1974, it has generated 20 percent of the multinational's profits. Despite record returns in 1978 and profits totalling $12.8 million for the first nine months of 1979, the firm has trailed far behind Quebec's other asbestos corporations in renovating its mines and mills. Even more significantly in the opinion of Quebec officials, Asbestos Corp. has plowed back none of its profits into local plants producing final products from fiber that it mines in the province.

Quebec's asbestos industry reflects the pervasive role of foreign capital throughout the provincial economy; it is thoroughly dominated by five firms, all foreign-based multinationals. The lack of local processing for the region's asbestos has been a major consequence of this foreign domination. And Asbestos Corp. has been the most serious offender in this regard. It alone among the five leading producers processes no raw fiber locally. While only 3 percent of Quebec's asbestos is processed in the province, the government views the expropriation as a first step in its program to raise the figure to 20 percent.

Thus far, the major obstacle to additional processing jobs has been the multinationals' failure to develop varied markets for Quebec's asbestos. Asbestos Corp. has been particularly unwilling to diversify its product line. Nearly 85 percent of the corporation's fiber output is earmarked for the production of asbestos cement in Nordenham, Germany. The provincial demand for this material is small and its weight makes local production for export economically prohibitive.

Daniel Perlstein, president of the government-owned National Asbestos Corp., is convinced that after expropriation, Quebec will find new uses for the company's fiber. Already, he has announced the opening of a flooring felt plant at Cap de la Madeleine. Papier Cascada, a Quebec firm, will operate the plant while Domco Industries, another local enterprise, will be its distributor and chief initial customer. Local sale of asbestos products will increase the number of processing jobs.

Asbestos Corp.'s failure to reinvest its earnings in Quebec has done more than reduce the number of jobs created by the corporation. In a recent interview, Perlstein labelled the multinational's facilities "the most dusty, the most polluted workplaces in the entire industry," adding "the number of asbestosis cases and lung cancer cases are in the large majority from Asbestos Corp."

Perlstein's criticisms of the company on these grounds may point to a serious flaw in the government's vision of economic development through asbestos. Even if Quebec can succeed in curbing the hazards associated with asbestos production, it is doubtful whether it can control all the hazards associated with its use.

Growing concerns about the safety of asbestos may lead to sharply diminished demand for the material. For example, the European Economic Community (EEC) is considering a ban on the use of asbestos where alternatives are available. The ban would sharply reduce world demand for products such as asbestos cement, floor tiles and friction materials. Sweden has already banned the manufacture of asbestos cement, and the International Metalworkers Federation estimates that since the 1976 ban, imports of asbestos fiber have declined from 20,000 tons per year to only a few thousand tons.

In 1978 the U.S. Department of Health, Education and Welfare predicted that the material will be responsible for as much as 17 percent of all U.S. cancer cases in the next decade.

Quebec officials are aware of these potential marketing difficulties, and are consequently hedging their bets with plans to use the new government corporation's asbestos reserves to make non-asbestos products. Magnesium oxide, a mineral extracted from asbestos tailings, is one possibility. The government has allocated funds for research into developing a profitable process for magnesium oxide extraction .

The development of magnesium oxide production, however, is still in its early stages, and the economic viability of such an industry is open to doubt.

Given the dangers of asbestos, and the uncertainty of establishing a magnesium oxide industry, Quebec's planned expropriation seems premature at best, and at worst a misdirected venture by a government with justifiable reasons for seeking serious remedies to the province's economic ills.