No sustainable future in a McMurray economy

Blame it on corporate greed. Or maybe on out-of-touch unions. Either way, 450 workers at the Electro-Motive Diesel plant in London have joined the growing ranks of the unemployed. In isolation, what happened there is a shame. Looked at in perspective, it’s a microcosm of what’s plaguing our economy. The company, owned by U.S. giant Caterpillar through its subsidiary Progress Rail Services, says it needed wage concessions of 50 per cent to keep the plant going. Shortly after locking out the workers, it announced plans to shutter the building, moving production to its new facility in Indiana, which just happens to have adopted right-to-work (i.e. anti-union) legislation.

Reaction to the news essentially falls into two camps: one says the company’s only goal was to drive down costs despite making huge profits last year, the other says unions got greedy, opting for no jobs instead of those paying half of the $35 an hour previously paid to workers.

Leaving aside arguments that the owners never had any intention of continuing to run the operation long-term after acquiring EMD in August 2010, the real issues at play are free trade and globalization. Caterpillar argues it can produce the locomotives at the U.S. plant for less than half the $35 an hour it pays to workers in London. Though the parent company made record profits last year ($4.9 billion), there’s more money to be made by slashing costs. Nothing new there: shareholder returns – and large management bonuses – are the priority.

Having gained concessions from Indiana, the company can simply ramp up production at the new facility and ship product north as needed. With facilities in Mexico, China and India, low wages are clearly an issue for EMD.
The closure is the latest in a long line of hits taken by Ontario’s manufacturing sector, which was already suffering from the high value of the dollar and, especially, free trade agreements that had hollowed out industry here even before the Wall Street-created financial collapse. While some facets of the economy improved last year, for instance, manufacturing wound up 2011 with a string of job losses, including in the plastics and rubber, computer and electronics sectors.

In fact, across the country employment in factories fell to its lowest level since Statistics Canada began collecting data in 1976.

Summing up the manufacturing sector, Avery Shenfeld, chief economist at CIBC World Markets, paints a bleak picture. “Productivity gains are a positive story, but the sadder story is that Canada has been pricing itself out of manufacturing as resource industries’ success drives up our currency. The world is beating down our door for our resources at a greater rate than for our manufactured goods.
“Unfortunately, the combination of sluggish growth beyond our borders and a still-elevated Canadian dollar doesn’t give much promise to manufacturing as a source of employment growth.”
As new Census data released this week by StatsCan show, there’s a correlation between the declining in manufacturing in Ontario and growth out west, where the resource-extraction industry is booming. Similar gains, though less notable, have been seen on the East Coast where oil and gas are in play.

With the decline of value-added manufacturing, we are in danger of regressing to our age-old role of hewers of wood and drawers of water.
Well, that and the purveyors of service jobs, as that is where much of what passes for employment growth has been. Low-paying, part-time jobs with few if any benefits are increasingly the norm.
Manufacturers in this country have shed some 300,000 jobs in the past decade or so. Everything from higher labour costs to red tape and a strong loonie have been blamed for the crisis. It’s cheaper to make goods in China or Mexico, so that’s where those intent on short-term gains go to do business.

The workers displaced by plant closures – offshore transplants or recession-invoked bankruptcy, it doesn’t matter – find themselves looking for work in a tough environment. Those lucky enough to find another job typically take a pay cut, reducing buying power and ultimately contributing to the overall economic malaise. Another  Statistics Canada study shows  that those Canadians thrown out of work by closures and mass layoffs who find other jobs suffer an average decline of 25 per cent in earnings, implying a loss of about $10,000 a year for a typical manufacturing worker.

As a result of the recession, even the growth in poorly-paid service jobs has been unable to keep up with manufacturing losses, at time driving up the overall unemployment rate. The remedy? More of the same failed policies that are in part responsible for the mess we’re in: trade agreements, corporate tax cuts and a focus on resource exports, as evidenced by the likes of the Canadian Chamber of Commerce and Canadian Manufacturers & Exporters.

That focus may help sell unprocessed bitumen from the tar sands in Alberta – shipped off to be processed elsewhere, and sold back to us a finished products – but it’s not a sustainable arrangement, especially as Alberta holds on to little in the way of royalties, a common problem with resource extraction across the country.

In the rush to blame the workers for EMD’s decision to shut the plant – there’s been a fair bit of CAW-bashing in the blogosphere – it’s important to remember the lack of sustainability before simply recommending the unemployed move to Fort McMurray.

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