The Canadian Economy: Trade and the Auto Industry

MR. DERRY:

Distinguished Past Presidents, members, and guests: In view of the adversarial role that almost inevitably exists between unions and management, it is unusual for those most directly involved in negotiations to escape the ire of their counterparts on the other side. Yet, in spite of obvious differences of opinion as to principle, today's guest speaker is admired by his union members for tough stands taken in their interest, which is not surprising, but what is surprising is that he is a person highly respected and even applauded by those in management who have dealt with him. "Open and straightforward," "pragmatic," "like a breath of fresh air" - these are phrases used by senior executives of auto companies when asked to describe Robert White. Admittedly, these viewpoints were not expressed in the heat of negotiations; and yet, negotiations with Mr. White, though tough, are far less likely to get heated than one might expect. Wilfred List* has described him as being cool, seldom fazed, invariably soft-spoken, and articulate.

Bob White has spent virtually all of his career to date on behalf of the United Automobile Workers. He started in

*Wilfred List is a labour journalist for The Globe and Mail.

Woodstock, first as a shop steward in a woodworking firm when only sixteen years of age, and took on increasingly demanding responsibilities until joining the UAW staff in 1960. In 1972, he became assistant to Dennis McDermott and in 1978, when Mr. McDermott retired from the UAW to head the Canadian Labour Congress, Robert White, at the age of fortythree, was the obvious choice as his successor. Thus, he became Canadian Director of the UAW and a vice-president of the International Union.

Since that time he may well have wondered about the wisdom of his timing. In addition to auto workers, the UAW Canadian branch membership of one hundred and twenty thousand includes employees in the farm implement and other industries. To be confronted with negotiations on behalf of members with Chrysler, Massey-Ferguson, and White Farm Equipment in the midst of such a severe industry downturn, must have challenged even his ability to stay cool.

And it is unlikely that the path ahead is straightforward. The UAW is on record as having plans to fight for a shorter work week in negotiations with Ford and General Motors later this year; this, at a time when some question the cost-competitiveness of the Canadian automobile industry, and when Mr. White has been tilting at our international trade minister for letting too many Japanese cars into Canada.

Mr. White, we were delighted when you agreed to address our members, and we look forward now to your address on "The Canadian Economy: Trade and the Auto Industry."

MR. WHITE:

Mr. Chairman, ladies and gentlemen: Canada, economists tell us, has now left the recession, and has entered the recovery stage. Any signs of a recovery are, of course, welcome - even if opinions on its duration are mixed. I do not want to debate here the questions of how fragile or how long-lasting this recovery will actually be. What I do want to emphasize is the frightening number of individuals and families who have been excluded from this so-called "recovery." Imagine if, at the beginning of the seventies, someone had predicted a sustained period of double-digit unemployment in our society. Along with any such prediction there would have been a scenario of widespread social unrest, and a consensus that such blatant waste and widespread denial of opportunities would have threatened the legitimacy of the social order. What was unthinkable a dozen years ago is the reality today. And what would have been a cruel joke then is a tragic fact today: one and a half to two million people cannot find full-time jobs, no one sees significant improvements down the road, but we do hear this period defined as a "recovery." The fact is that if we compare this "recovery" to past recessions, the unemployment rate today is higher than it has been in any recession in the past four decades! Turning from the present to the future does not lead to any justification for optimism. Working people want to know where future jobs will come from; our society has given no adequate answers. We must make jobs this country's number one economic priority. And we must do it now.

In the early seventies, we were told that the key to jobs and long-term security was high corporate profits. Between 1970 and 1974 profits increased by 138 per cent, but working people were singularly unimpressed as these higher profits were also accompanied by the greatest outflow of capital we had experienced to date. In fact, by the mid-seventies, we were told that the situation was now so severe, in spite of those earlier profit increases, that it was necessary to introduce wage controls and severely limit the most basic function of trade unions. Again, the rationale was that this would lay the basis for structural changes and long-term prosperity. And again, the actual result was rising unemployment through the period of controls and, soon thereafter, the deepest recession since the thirties.

During the seventies we saw a re-emphasis of a theme that has always been a fundamental part of Canada's strategy for prosperity: resource megaprojects and the expectation that they would somehow lead to positive spinoffs in the manufacturing sector. But no such manufacturing base has emerged:

- We still don't produce the machinery that is used in the resource sector;

- We haven't increased our degree of domestic processing of resources into manufactured goods;

- Profits from the resource sector have not found their way into investments in the manufacturing sector.

Such resource dependency has left Canada, and especially certain communities, extremely vulnerable. On the one hand, it is generally conceded that there will be few or no new job opportunities in this sector; on the other hand, the concentration on resources means that we do not have the necessary facilities, machinery, tools, and skills to provide the flexibility which is so fundamental for diversification.

Another perspective that dominated business and government strategies in this period was the monetarist emphasis on inflation. Underlying this view was the argument that the recession was necessary to cut the fat in the economy, thereby making us more "internationally competitive." The tragic social costs of this policy approach have been well-documented, but even in narrow economic terms, this program has not succeeded in its stated objective for the following reasons:

1. Because we do not have a strong manufacturing base, getting rid of the weak and leaving the market to the strong simply meant letting domestic corporations die, and increasing imports from foreign sources.

2. Since other Western economies pursued similar strategies, Canada's relative competitiveness didn't advance. And especially important, as each of these countries allowed their own economy to stagnate, there was less worldwide demand for goods. A deeper recession throughout the Western world was the not-surprising result.

3. The depth of the recession (worldwide and domestic) meant that more than just the weak firms and facilities were cast aside - many potentially viable companies were also destroyed. And many of those that did survive remained cautious with regard to their future investment plans, thereby seriously affecting our future output potential. The legacy of this is that, even during this present so-called "recovery," capital spending is expected to remain flat even after the depressed levels of last year.

Let me turn now to the buzzwords of today; they do not differ fundamentally from what we have heard over the past decade:

- we must become "internationally competitive," develop our "export orientation," secure "free trade," and move to "high tech."

- we must strengthen the "investment climate," "restrain" social services and wages, and improve "labour-management relations."

In commenting on these slogans, attitudes, and policies, I want to use the auto industry as an illustration to make the discussion more concrete. I've chosen auto partly because it is the industry I am closest to, but also because I think it exposes the naïveté, contradictions, and social biases inherent in much of the above.

At one extreme are the free traders. The market, they solemnly tell us, must rule: since the Canadian auto industry can't make it in the free market, it should be abandoned. To demonstrate that they are socially sensitive, they stick their necks out and come out strongly in support of worker retraining. This approach is simple and clear. It's also silly and dangerous.

The auto industry is arguably Canada's most important manufacturing industry. It accounts for half our trade in manufactured goods, employs - directly and indirectly - onequarter of a million Canadian workers, and provides the solid foundation that strengthens the viability of many firms and key sectors outside of the auto sector, such as steel and rubber, glass and plastics, foundries and tool shops.

Auto is also one of our most competitive sectors: productivity growth in auto has, over the past two decades, grown fifty per cent faster than manufacturing as a whole and with the recent restructuring and investment, it will continue to set the pace for the Canadian economy. So, when I hear someone talking about abandoning auto I quickly ask what will replace it - where will the alternative jobs come from, what will happen to auto communities, what will happen to auto-dependent sectors? It's nice to talk about retraining, but also irrelevant if there are no jobs available.

One reply that seems to be "in" these days - and not just among free traders - is the salvation of "high tech." The issue is not whether high tech has positive potential - it obviously does. The issue is whether high tech has been presented in a superficial manner, and whether its potentials for Canada have been exaggerated. To start with, we have to ask how a country that has not been able to develop a strong manufacturing base could magically jump into high tech. And then whether, without the technological base of an independent manufacturing sector, high tech could emerge on a broad scale. We have to ask, of those that put such great emphasis on the judgements of the market, why auto should be abandoned and "high tech" supported. After all, our relative size and relative competitiveness in auto are much stronger than they are in high tech. In auto, we compare favourably to the United States and Europe, but lag Japan; in high tech, we lag not only Japan, but also the United States, France, and West Germany, among others. And the number of countries and jurisdictions brawling to become the next Silicon Valley is overwhelming, to say the least.

We also have to ask where the high tech will be applied. High tech does not exist in isolation - it is used in manufacturing and today, auto is one of the largest users of high tech. Wander through the General Motors Transmission Plant, observe the Oshawa Paint Shop, tour the Ford engine facility, greet the robots at Chrysler Van, examine what's happening in our parts facilities: the above point will soon be evident. If we let existing industries like auto go, then a potential major market for high tech is also lost. And if you actually look at the hard numbers regarding high-tech jobs, it soon becomes evident that even on the basis of optimistic projections, the numbers are simply not there - they aren't even close. For example, a recent in-depth projection of future employment in the United States showed that jobs for computer systems analysts, computer programmers, and computer operators would increase by eighty per cent between 1982 and 1995, while the number of secretaries would grow by less than thirty per cent. But in terms of actual jobs, rather than percentages, the number of secretarial jobs will increase by more than the three high-tech sectors combined. There are projected to be more new jobs for electricians than for computer operators, one and a half times as many new positions for supervisors of bluecollar workers than computer programmers, and twice as many nursing aides and orderlies as computer analysts. This report from the United States Bureau of Labor Statistics came to an unambiguous conclusion:

It should be reiterated that even when high tech is very broadly defined, it has provided and is expected to provide a relatively small proportion of employment. Thus, for the foreseeable future the bulk of employment expansion will take place in non-high tech fields. (Monthly Labour Review, November 1983, p. 58)

What about the argument that Canada should exploit overseas export markets, become more productive, lower wages, and improve labour relations? There are, of course, isolated examples of Canadian penetration of overseas markets, but I have not heard anyone detail which markets we could expand into in a substantial way. The world today is more competitive than it has ever been; and if we were unsuccessful in previous, more favourable periods in competing successfully with countries that have to ship their goods to us, where is the basis for thinking we could compete on their turf now? I know of no one involved in the industry directly, or as an analyst, who believes that overseas markets represent a serious possibility for domestic auto exports. There are two main reasons for this. First, there is the emergence of new competitors abroad, such as the Japanese corporations. We can improve our productivity, but they are not standing still. And if we do match them in productivity, we cannot ask Canadians - all Canadians - to pursue a solution that requires going backwards toward a significantly lower standard of living.

Consider what has happened over the past few years. Auto workers in the United States have suffered through painful compensation concessions. Did this solve the long-term problem? No. In fact, over this period, the compensation differential between Japanese and American workers actually increased! In part, this was the result of the dollar/yen relationship. But it was also related to the fact that auto wages in Japan, in spite of rapid productivity growth, increased more slowly than at any time in the past two decades.

A second explanation for the limits on our ability to export overseas is the expansion of options for North American (essentially United States) companies. The development of social and economic infrastructures in the Third World; the advances in international transportation, communication, and finance; and the standardization of global markets mean that the multinational corporations can now, more easily than ever, combine the technology of the advanced economies and the wages of the Third World. We cannot beat this combination. And so, while we focus on the competitive threat from Japan, the Japanese are looking over their shoulder at the South Koreans, whose hourly compensation costs are $1.50. And while we dream about the never-never land of exports to Asian markets, they are preparing to capture our vulnerable domestic market.

Let me now say a word about labour-management relations. The UAw has a reputation - one that we are proud of - of being innovative in collective bargaining, of playing a leadership role on social issues, and of representing its members in a determined manner in conflicts with management. Some business representatives have argued that this seriously damages our relative competitiveness. I suggest that anyone interested in this issue do what business always does - look at the bottom line. What will be found is that our labour costs are twenty-five

per cent below those of the United States and that they compare favourably with those of Europe. And what will also be found is that our productivity, quality, and absenteeism rates are as good as or better than comparable facilities in the United States, Europe, or Australia.

These points are not merely UAW opinions. They have, in the automotive task force, been agreed to by the industry itself; an industry, I might add, that has never been considered a walkover in collective bargaining, neither in the past nor during the recent periods which some have dubbed "concessionbargaining." Their reinforcement of the above facts is, therefore, all the more convincing of our position.

The crux of what I am getting at is this: here we have an industry that has all the potential advantages one could reasonably expect - a significant market and access to the world's largest market, cheap and reliable energy supplies, a developed infrastructure, competitive taxes, anxious and efficient suppliers, modern facilities, a skilled and reliable work force, competitive labour costs - but we will not be able to make it if the industry's fortunes are left to free trade. We have to ask ourselves this uncomfortable question: if we cannot even be successful in this key industry, can we really expect to make it anywhere to any relevant degree? And if we cannot mobilize the political will to act in this most important and relatively strong sector, can we really believe that we will act more generally to develop a strong manufacturing base?

In challenging the twin ideas of free trade and becoming internationally competitive - ideas that dominate business and government circles in this country - I am not rejecting either the importance of trade or the importance of improved productivity. Trade is important, too important to leave to the whims of the market and the unilateral power of multinational corporations. And productivity does create the potential for an improved standard of living, but this potential can be frustrated if, in order to become internationally competitive, we constantly have to restrain our standard of living. And this potential can also be frustrated if, as I've argued, productivity improvements still do not guarantee us improved security because of international competition. For example, over the last fifteen years, the output per man-hour in manufacturing has increased by over fifty per cent, but can we really say that we are more secure today than we were then, or that our society today is fairer, more just, and more humane? And we see major industrial restructuring taking place with overwhelming projections about the new technology - but alongside this threshold of giant strides in productivity and new wealth, we hear increased calls for restraint. As a result, our thoughts are, not surprisingly; dominated not by how this will automatically benefit us, but whether it will exclude us.

The logic of playing this competitive game is that it will increase inequalities in our society and retard social progress:

- workers refusing to surrender shop-floor rights won from stubborn managements after years of struggle are told this hurts our "international competitiveness;"

- parents arguing for more day-care are told it's too costly a diversion of resources from the private sector and cannot be afforded in a competitive environment;

- corporate taxes are reduced, their subsidies increased, and taxes of individuals in lower and middle tax brackets are increased to pay the corporate share, all in the name of retaining or attracting investors who have numerous competitive alternatives.

The list goes on. Significant improvements in pensions are postponed; the medicare system is eroded; labour rights are attacked. Rather than defining our social goals and objectives first, and then asking how to structure the economy to achieve such goals, the status quo becomes the starting point, and our alternate social goals become secondary. Even "victories" will only be temporary as others undercut us. In the fifties, we were told we should match the success of the Swedish system; by the sixties, the Swedish workers were being asked why they couldn't be like the West Germans. In the seventies, the West German workers were warned that they should follow the Japanese example; and today Japanese workers are concerned about competition from Southeast Asia. The point is that playing the game of free trade and accepting the priority of becoming internationally competitive is, for working people and most Canadians, a game we cannot - in spite of our potential - win. It is a dead end. Nor will we make it through discussions aimed at making the Japanese and other multinationals be nice to Canada voluntarily. While we're consulting, Ford will be building its new car in Mexico, motivated, as Ford Chairman Philip Cauldwell told Automotive News, "more by government (content) policy than by prospects of saving money." (January 23, 1984)

G.M. - whose chairman, Roger Smith, proclaimed three years ago that G.M. was preparing to push Japanese imports back into the ocean - is now standing on the shore, welcoming new joint ventures, and preparing to import small cars from both Japan and South Korea. The Japanese multinationals, and their political spokesmen, will continue interminable discussions, make vague future promises, lecture us about the virtues of free trade, while ignoring their own path to developing an auto industry, and continue to have a penetration in Canada that is double that in Europe, with no commitment to jobs in this country.

The United States-based corporations that are now feeling the competitive crunch will solve their problems - by outsourcing, by importing, by joint ventures - but this will not solve the problem of Canadian jobs, of a manufacturing base in Canada.

The Japanese multinationals will try to ease political pressures with token gestures. In the United States, while far short of making a commitment proportional to their market share, they are involved in three assembly operations and Nissan, for example, now sources from sixty-three United States suppliers. But in Canada, we have not yet had even a minimal response. That's why we've insisted on the basic principle of content legislation - legislation to guarantee Canadian input if a company wants to sell in this important market.

Public debate on these kinds of questions has been largely limited to the question of the best strategy to become internationally competitive. What I'm saying is that first we must have a public debate on more fundamental issues: Do we want to play the game? What are the alternatives? And what kind of society do we want?

In my opinion two issues will dominate the political scene in the balance of the eighties - jobs and peace. I don't have time today to deal with my concern about the need for international dialogue and reduction in nuclear arms. I do hope, however, that I have successfully emphasized to you the importance of jobs for the future of this country. I do not suggest easy answers. I've been warned not to ask for a show of hands supporting my proposed solutions at this meeting. But Canadians must initiate a discussion that goes beyond too-easily-accepted conventional wisdom, and addresses the fundamental issues.

The appreciation of the audience was expressed by Michael Meighen, a Director of The Empire Club of Canada.