Ailsa Henderson: What happened before Quebecers said Non

THE UK government’s intervention attempting to set the terms of a Scottish referendum on independence has obvious parallels to Quebec. Economic uncertainty played a role in the 1995 referendum campaign and the federal Canadian government sought afterwards to establish clear rules for any future referendum. By emphasising the importance of a clear Yes-No question, for example, Michael Moore is taking a well-established line. So what can the 1980 and 1995 Quebec sovereignty referendums tell us about market reaction to constitutional uncertainty?

By almost every indicator, the economic reaction to the 1995 campaign in Quebec was not positive. The performance of Quebec-based firms on the Montreal and Toronto Stock Exchanges deteriorated, as did bond market ratings. The cost of government borrowing increased and exchange rates suffered. Inflation, by contrast, didn’t budge, thought to be a reward for the anti-inflation policies of the Bank of Canada. Some of these indicators showed negative signs well before the referendum campaign. Others were quick to react afterwards. Stock market performance for Quebec firms bounced mere days after the slim (50.6 per cent) No vote.

When Alex Salmond announced that the referendum would be held in autumn 2014, he removed one element of uncertainty for markets. We know that in Quebec, the cost of government borrowing was particularly affected more than a year before the referendum, due to uncertainty about its timing. It then improved until the actual campaign.

Also, market reaction is not uniform. The share prices of multinational corporations fare better than those of local firms. Companies whose growth is based on assets that cannot be readily abandoned, such as factories, tend to see share prices suffer more than those whose growth is tied to skills and services, such as IT. In general, the more integrated an economy, the lower the risks of independence.

Economic consequences are widely felt. Before and during the 1995 referendum campaign the cost of government borrowing in Quebec increased, but so too did the cost of Canadian government borrowing. Just because the Scottish Government can’t borrow money of its own accord doesn’t mean that bond yield spreads don’t matter. The cost of borrowing for the UK government could well increase as a result of uncertainty over the independence referendum campaign. The usual interpretation is that Quebecers and other Canadians continued to pay higher interest on government borrowing as a result of constitutional uncertainty long after the referendum, but largely because the close result didn’t seem to resolve anything.

When David Cameron and Michael Moore suggest firms are reacting nervously to constitutional uncertainty, and that this will bring negative economic consequences, there is every reason to believe they are right. But two things are worth noting. First, markets don’t like uncertainty and any democratic event offers a form of uncertainty. The indicators that react poorly to the prospect of referendum campaigns – share prices, bond yield spreads, exchange rates – react to election campaigns as well, as they did in 1987 and 1992. We must distinguish between market reaction to the prospect of particular outcomes and to uncertainty about outcomes. We cannot make the argument that uncertainty in itself is to be avoided; that would be an argument against elections just as it would referendums.

Second, the attention that politicians pay to economic uncertainty often has unintended consequences. We would expect the rational voter to abhor uncertainty, and avoid any political option that might have negative economic consequences for himself, his family or perhaps even the country as a whole. Voter behaviour in referendums, particularly in Quebec, tends to show that this is not the case.

In part this is because economic threats quickly begin to sound fanciful. It is hard for individual voters to assess the merits of various claims. Full marks, then, to the first politician able to translate the various economic risks into easy, clear language. In 1980, when he was provincial finance minister, Jacques Parizeau of the Parti Quebecois admitted that yes, sovereignty-association – the term they use for having far greater powers, more than “devo max” – would bring economic costs, but that they would probably work out to the equivalent of a case of beer per month for every Quebec voter. Was an independent Quebec not worth a case of beer? This was an off-the-cuff retort, but it then became difficult to identify the economic costs to independence without implicitly invoking the “case of beer” analogy. So would that be two cases of beer then? Three?

The other issue is that voters care less than we think they should about the economic consequences of constitutional change. This was certainly true in 1995. Even when large Quebec companies such as Bombardier or Standard Life threatened to leave in the event of a Yes vote and federal politicians warned independence would cost a million jobs in Quebec, support for independence continued to rise. These were not idle threats, but voters didn’t care.

Most of the evidence suggests that it mattered who the leaders of the Yes and No campaigns were, whether they are perceived to be trustworthy, likeable and credible. In fact leadership was deemed so important that each side changed leaders during the campaign in favour of a more charismatic option. Of course national identity matters too – we know this from the referendums on EU membership and the euro – but in Quebec it has mattered surprisingly less than we would expect.

Threats, particularly economic threats, seem to be something of a devaluing currency. One economic threat, mentioned repeatedly, might be effective. But three or four or five, mentioned by different groups at different times, prompt voters to think politicians are scaremongering and ignore the whole lot of them. In their efforts to regain control of the agenda, David Cameron and Michael Moore might well find they do more harm than good for their cause.

• Ailsa Henderson is senior lecturer in politics at the University of Edinburgh and author of Hierarchies of Belonging: National identity and political culture in Scotland and Quebec, 2007.