Hot! Policy, not technology is killing Canadian manufacturing

OttawaCitizen.com – opinion
January 24, 2012.   By Jim Stanford, The Ottawa Citizen

Professor Mike Moffatt presented a thoughtful analysis of the decline in Canada’s manufacturing sector in his commentary in Monday’s Citizen (“Where the jobs went”). He argues the downturn reflects the neutral and inevitable advance of technology. Since automation allows workers to produce more, in less time, it is normal and even desirable for fewer Canadians to be employed in manufacturing. “The real culprit is technology,” he concludes, in reference to the locked-out workers at the Caterpillar factory in London.

Technology is certainly important to the long-run evolution of manufacturing. The sector has more capacity than others to mechanize production and boost productivity. Indeed, this is one reason it’s so important to defend a healthy manufacturing base (contrary to those who wish to abandon manufacturing in favour of a “post-industrial” economy). Countries with bigger manufacturing industries demonstrate higher average productivity growth.

So technology can explain some of the job loss, but not most of it. It certainly cannot explain the disproportionate carnage in Canadian manufacturing, nor the all-out industrial warfare which now characterizes much of the sector (like the management lockouts at Caterpillar and Rio Tinto). The loss of 500,000 manufacturing jobs in Canada over the last decade was far more dramatic than most jurisdictions. Many factors contributed to this miserable record, including lopsided trading relationships, the volatile trajectory of Canada’s currency, and the unprecedented aggression with which business executives now do anything that boosts profit margins, without regard to community welfare.

Technological change applies to all manufacturing jurisdictions, so there should be no secular trend in Canada’s share of total manufacturing production. However, contrary to Moffatt’s assertion, our relative share of global manufacturing has indeed declined dramatically. As recently as 2001, Canada was broadly self-sufficient in manufacturing. Huge volumes of two-way trade entered and left, but at the bottom line we exported as much as we imported (about $300 billion each way). By 2011, however, this balanced position disintegrated into a massive manufacturing deficit of almost $100 billion, which explains 300,000 of the jobs lost since 2001.

That overall deficit reflects the sum of many bilateral deficits. Our manufacturing trade is precariously unbalanced with China ($40 billion in the red last year), Europe ($25 billion), and Mexico ($15 billion). We used to pay for those deficits through a huge surplus with the U.S., but no longer: a diminished surplus with America now offsets just a fifth of our massive deficit with the rest of the world. A petro-fuelled 60-per-cent surge in the loonie only accelerated Canada’s loss of market share.

The industry’s crisis, like the conflict at Caterpillar, is not really about technology. The Caterpillar workers in London possess unique, specialized skills (such as customized welding techniques). If it was simply a matter of negotiating how technology is introduced and managed, and adjusting head counts or work practices accordingly, those are attainable goals. The CAW and other unions have done precisely that, many times over. That’s why Canada’s auto industry, for example, enjoys a verified productivity advantage over its U.S. counterpart.

But Caterpillar’s demand to cut Canadian wages in half has nothing to do with technology. It reflects power: a global company’s ability to isolate and threaten workers, one factory at a time. And it reflects policy: an active decision by governments (like Canada’s) to let them do it.

In short, Moffatt’s faith that technological growth makes everyone better off is unjustified by recent history. Lopsided globalization, and the aggressive actions of business leaders, have severed the traditional link between productivity and mass prosperity. That’s why real wages in Canada are no higher today than a quarter-century ago, despite a 35-per-cent increase in labour productivity in the same time. And that’s why Caterpillar executives (who receive salaries worth tens of millions of dollars) feel entitled to demand enormous rollbacks from highly skilled Canadian workers, on pain of total disinvestment.

Governments must use proactive policy tools to defend Canada’s share of manufacturing, and to make sure Canadians get a fair share of the manufacturing wealth we produce. Others do that, and their manufacturing sectors are thriving — technology and all. Can you imagine the governments of Germany, Japan, or Korea tolerating what is happening at Caterpillar today: where a global giant buys an important and profitable industrial asset, no conditions attached, and then attacks so aggressively the well-being of domestic workers and the future of the factory itself? So long as our governments renege on their responsibility to support domestic manufacturing, the sector’s misery can only get worse.

Jim Stanford is economist at the Canadian Auto Workers, which represents the locked-out workers at Caterpillar in London.

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1 Comment

  1. So, what are your specific solutions for the problem, Jim?

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