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The Progressive Economics Forum

What Newfoundland & Labrador Can Teach the Rest of Canada About 21st Century Globalization

A shorter version of this analysis appears at the Globe and Mail’s Economy Lab. See article and comments here.

Last fall Premier Danny Williams wondered what could drive anyone to let hundreds of millions of dollars slip through their fingers. Last week he got his answer.

The Roil report on the 18-month strike at Voisey’s Bay nickel mine in northern Labrador is an eye-opening case study in 21st century globalization, and has the potential to be a game-changer.

It is the final output of an industrial inquiry commission appointed by now-ex-Premier Williams in October 2010.

At that time about 240 United Steelworkers had been on strike against global mining giant Vale since August 2009, labour relations had become toxic, and Innu and Inuit communities finally poised to make economic gains had become tragically split down the middle.

The commissioners reported that Vale ultimately lost an estimated $500 million to $1 billion in operating revenues; the workers lost over $9 million in wages over 2009 and 2010; the union spent about $4 million in legal fees, staff supports and strike pay; and Newfoundland and Labrador’s GDP took at 1.4% hit in 2009, 2.6% in 2010.

(Notwithstanding this, Newfoundland and Labrador’s economy grew faster than any other province in 2010.)

Less than three months before the inquiry was launched, Vale had settled a 12-month strike in Ontario, with 3,400 Steelworkers in Sudbury and Port Colborne, one of the longest strikes in Canadian mining history at that time.

Mere days before the inquiry started, the federal government gave Vale a $1 billion U.S. loan, one of Export Development Corporation’s largest.  Less than a month after that windfall, Vale announced that it was laying off 500 workers at the Thompson, Manitoba refinery and smelter, which has been in continuous operation since the 1950s under Inco.

Vale bought Inco in late-2006 for $19.2 billion U.S., making it the world’s biggest extractor of iron ore and the second largest mining company in the world.  Despite the protracted strikes in Canada, Vale reported net profit of $17.3 billion in 2010, more than three times the previous year. Revenue was $46.5 billion in 2010, nearly double the 2009 revenue.

Vale’s revenue base is bigger than the economy of Newfoundland and Labrador (GDP of about $30 billion in 2010), an increasingly common phenomenon as multinationals get bigger, less reliant on any particular location in their network, and production moves to more remote locations.

That’s certainly the case in Canada. Our trajectory of economic growth courses along the veins of resource extraction. Our most resource-rich locations are increasingly found on lands traditionally held by Aboriginal peoples or adjacent to them. From an east-west axis of development that hugs the 49th parallel, Canada’s new growth pole is the north, an emerging economy like so many others in the global supply chain.

In the case of Voisey’s Bay, deals were cut with the Innu and the Inuit peoples who could lay claim to these lands, pitting workers against one another, neighbours against neighbours.

Is this the new face of globalization?

What the Roil report makes clear is that the potential for prosperity is huge; but how it is distributed and sustained is hotly contested.

Newfoundland and Labrador’s economy survived decades of austerity, and even though they are now a “have” province, their traditions are based on helping each other out, through thick and thin. They might not all get along, but they know they have to live with one another, for better or worse.

Tellingly, Newfoundland and Labrador have standing tri-partite councils of business, government and labour. They are the only jurisdiction in Canada –  perhaps North America –  to address common problems in this ongoing way. These “Strategic Partnerships” deal with issues as diverse as labour markets, employment relations, innovation, population, and transportation and communications infrastructure.  They provide a forum for timely intelligence-sharing, nip conflict in the bud where possible, and hasten the adoption of workable solutions.  This may be a clue as to why the government of Newfoundland and Labrador was more inclined to ask why things went so wrong than other jurisdictions faced with the same dynamics.

Now it is the best of times, for Newfoundland and Labrador, and Vale, alike. But so much momentum can easily run terribly amok in short order. Premier Williams’ decision, when he was Premier, to appoint an inquiry into the Vale issue sheds light on what could have been done to put it right, early and quickly.

The answer boils down to accountability and, ultimately, plain old talking. Turns out, you can’t run a successful business for long without talking with the people that make your business work for you. It also depends on making sure we don’t foul our own nest.   Turns out, we’re interdependent, with one another and the land itself.

It may not always be obvious.  Resource extraction used to happen in company towns.  Now economic development does not necessarily mean community development.

Voisey’s Bay is a typical example of what is happening. It has no road access.  It’s a fly-in, fly-out operation, courtesy of the employer, with workers coming in for two-week stints, working 12-hour shifts.

This is not unusual in recent mining and oil and gas developments. It’s hard to make this microcosm visible to the rest of the world.  There are a few scattered communities nearby, with large concentrations of Innu and Inuit populations starved for economic opportunity.

After Vale resumed production during the strike, these communities were turned to for replacement workers (scab labour), creating friction in the community and, in some cases, within families.  Vale also contracted out a service that recruited workers from all points of the compass, raising concerns that it would import their labour force model from Brazil, where workers cycle through in two-year stints. It’s a common feature of maquiladora in many Central American nations and other economies that rely on migrant labour.  Unlike Canada, long-term employment is not a typical feature of Vale’s mining operations, even though they started out as a state-owned company.

Not initially, but within months of the takeover from Inco, Vale’s CEO Roger Agnelli made clear that Canadian operations would be brought “in line” with corporate practice elsewhere. As the March 2010 Globe and Mail feature Nickelled and Damned summarized “the essence was that Vale wants to have the same style of operation that it has in the rest of the world.” Their production network is mostly in developing nations.  Given the concessions that Vale was seeking across the country, Steelworkers perceived themselves as the bleeding edge of a systemic attack on workers’ expectations.

Vale’s behaviour also springs from a “home country” culture that has few regulations, weak enforcement of those regulations and negligible labour rights.  The concept of stakeholders does not exist in its strategic decision-making. What Vale chooses to do, Vale does. There is no need for discussion.

When problems arise, win-win solutions are hard to find: there is no sense of common purpose or shared future. That culture clashes with ours. Canada’s institutions, regulations and laws were built on a different foundation — designed to balance the rights and responsibilities of the powerful few with the vulnerable majority.

Vale and others will say “That was then; this is now.” Partly culture, partly location, the Roil report reads as if Vale doesn’t think anyone is watching, or should.

Not so fast, says Steve Ashton, MLA for Thompson, Manitoba and Cabinet Minister in the NDP Manitoba government.   “Vale can’t escape scrutiny. Look at what they do in Thompson.  This will be looked at around the world. A Zambian mining president during the strike in Sudbury said if this is the way they treat people in the first world we don’t want Vale in Zambia, in the third world.”

The lesson learned, from this story and countless others in our wired world: no matter how remote, the whole world could be watching.

Buried in the appendix of this report is a jewel of a submission by Professor Gregor Murray that methodically lays all this out and shows how globalization is changing, and changing us along the way.  Clear-eyed and matter-of-fact, it lays out the options for how to deal with these realities in Newfoundland and Labrador and elsewhere in Canada.

It is a gripping read, underscoring how globalization is not a one-size-fits-all proposition, and that we have plenty of choices when it comes to dealing with huge multinationals, despite growing imbalances in bargaining power.

Murray makes the distinction between soft power and hard power that governments have, should they choose to exercise it.

Soft power includes ways to strengthen and foster institutions that make it easier for parties to talk.  Conciliation and mediation mechanisms have fallen into less use, but can be powerful tools to hasten information exchange and forestall stalemates. Constituting tri-partite sector councils is another means to such an end.

Hard power includes mechanisms that compel the parties to talk. These can include mandated labour-management committees wherever there is a collective agreement. It can include compulsory reporting requirements, to governments at the local, provincial or national level, already in place in numerous jursidictions. It can involve laws that compel any multinational corporation operating in more than one jurisdiction to hold discussions with all the parties involved on a regular basis, as has been the practice in the European Union since 1994. It can mean banning replacement workers, to restore the balance of power between workers and management, such as is the case in Quebec and B.C..

Murray’s submission lists an impressive array of instruments that are in use by multinational corporations already, in Canada and around the world.  All of them create an environment of better, more timely information exchange. That works to counter the growing imbalance in bargaining power between employers and employees. On the other hand, the most sure way of accelerating this trend is by shutting down information, dialogue, exchange.  We want our governments and our citizens to act responsibly, and be accountable to one another. We can expect it of our corporate citizens as well. Other nations do.

The Roil report, and Murray’s submission within it, shows how multi-national corporations are gaining in size and power, here in Canada and around the world. But it also shows how we are far from powerless to deal with them.  MNCs operate differently in different nations, depending on the norms, rules and expectations of the host nation.  Pause for a moment on the term “host”.  These companies are our guests.  They are invited in, under certain terms and conditions.  We have what the rest of the world wants.  What do we want out of the bargain?

It takes guts to seize and use one’s power, and wisdom to use that power judiciously.

It remains to be seen what the current Premier of Newfoundland and Labrador will do with the Roil report, and if any other political leaders will seize on the importance of its recommendations.

But the truth is that the commission’s report is less a cautionary tale than a story of possibility.

Canada will see much more foreign investment in the months and years to come.  We have a broad range of tools at all levels of government to manage that investment to serve the public interest, from the role of the federal government and how the Foreign Investment Act is used to serve the public interest to the role of the provincial governments and how they shape their labour, economic development and environmental ministries.

Our goal should be to export the first world economy and conditions, not import a third world standard.

The Vale example is a wake up call, and Newfoundland and Labrador is the first jurisdiction to really wake up and smell the coffee.

From economic mess to economic frontier, Newfoundland and Labrador has a thing or two to teach us about managing a future that is at once promising and threatening.  The Roil report is a beacon from the Rock that s lighting the way, showing what way danger lies and the route to safe harbor.

We can let globalization shape us, or we can shape globalization.  Our choice.  Our future. The whole world is watching.

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Comments

Comment from R Lockyer
Time: May 20, 2011, 9:30 am

‘It takes guts to seize and use one’s power, and wisdom to use that power judiciously . . .

We can let globalization shape us, or we can shape globalization. Our choice. Our future. The whole world is watching.’ Many lessons to learn- watch carefully

Comment from Paul Tulloch
Time: May 20, 2011, 10:33 am

Awesome article. Even with the longest industrial actions in our labour history, somehow the weasels (VAle) are let out of their cage. Even though they promised not to bite.

Those communities will never be the same (Sudbury, Port Colborne and Thompson, and of course the workers involved in NFLD.)

I got inside that strike a bit, with family and friends in Sudbury, the media through the Sudbury Star (got to know the local reporter), and activitist through Labourstart and running by an international online campaign and the union, some of my friends at the USW.

The blood and the tears were that which effected me the most at the local level. The dollar signs at the international by Vale and national level (Harper’s refusal to do anything but help VALE try and break the unions) It was the most disgusting feelings I think I have ever had inside my stomach- truly, I think I threw up a couple times, writing late night stories about the utter failure of our government to help Canadians fend off the attack of a foreign company.

Oh that was some nasty economics.

I do wonder, if the price of nickel had not fell, would Vale have went for the throat of these unions and their members. Sadly the local help at national, provincial and local level was just plain old mean hatred based on some old fashioned ideology that unions are no longer needed and can be destroyed.

Well, many families were destroyed, communities were attacked and divided, and jobs are now less secure. But ultimately the spirit of the collective will of these workers, although tested, was not broken. But at such a price, thinking about the election outcome yikes. it just makes me want to throw up again. Ahhh poor Canada, I hope that Thompson can now be saved at some level.

Our resource extraction economy is now under attack.

Comment from Sean Lyall
Time: May 20, 2011, 3:06 pm

I’m from Nain, 30km from the mine and the strike deeply affected Nain and Nunatsiavut in General. This is the most accurate commentary I have read thus far. Great article.
Sean Lyall
Nain, Nunatsiavut, Canada

Comment from travis fast
Time: May 20, 2011, 5:56 pm

“Our resource extraction economy is now under attack.”

Nope it is for sale. But then who cares? Do you think a transnational mining company that was Canadian based would behave any different? Nationalization has to be put back on the political agenda of the left. It really is that obvious.

Comment from Paul Tulloch
Time: May 20, 2011, 7:25 pm

as bad as Inco was, it sure was no Vale. However, who knows maybe they would have faced a situation similar and went after all it could including the USW. There is a hidden gem here- it was the Goro Nickel deposit in New Caledonia, supposedly new mining tech to extract similar ore from red clay. So hard rock mining not needed. However the tech is unproven, but they call it Sudbury of the South. It acme to Vale with Inco.

I am not sure nationalization is where I would go- maybe, depends I guess on taxation and royalties, but worker protection through a very tough legal IR system could have helped immensely.

We need new labour laws, if Harper wants to throw open ownership and cut CIT, then at least give us workers the ability to fight for a decent wage. That is what helped solve the great depression.

McGuinty was just as bad for not passing some tougher labour laws.

Comment from travis fast
Time: May 20, 2011, 9:03 pm

“then at least give us workers the ability to fight for a decent wage.”

Outside of the threat of nationalization how do YOU think you will ever get that?

Please do answer the question directly.

Comment from Paul Tulloch
Time: May 20, 2011, 10:34 pm

– of course without nationalization, one is up against Capital flight, and as much as we might want to believe, even within resource extraction industries it is still a threat- not as much as value adding industry.

However, I do believe there is more to it than capital flight or alternatively a multinational say whipsawing branches within different locations, (nationally or regionally).

There is a limit to how far one can push legistislation and hence regulation, and within that limit I still believe one can lay out some very tough IR legislation, and let capital and labour fight it out. But the playing field cannot be as tilted as we are getting in some areas of the global economy.

One cannot be a small island in a big ocean. So with coordination, across global industries, I do think there is a space that has potential.

Nationalization comes with a price as well. Tech constraints to mention one. So there are living standard trade offs.

Nationalization—–> tough IR regulation——> lower regulation ——-> race to the bottom

Comment from Travis Fast
Time: May 21, 2011, 6:18 am

Armine’s post was about 21st century globalisation. 19th century globalization finished with two world wars and the unwinding of the British Empire. In the wake of the all that ruin, destruction and death a new post colonial global order was cobbled together with essentially liberal humanist values. There were capital and currency controls and a host of trade rules along side the tacit recognition of unions and a progressive IR regime (as embodied in the ILO for example). 21st century globalisation is being led by a bought and paid for political system in the US and an over bloated global financial sector. The response to the last crisis was to go double or nothing on regressive liberal internationalism. The so called enlightened European project is now canalizing its weakest members into flows which keep bond holders 100% whole.

I am merely suggesting that something much more radical needs to be contemplated than minor ameliorations to the structurally bankrupt process called globalization 2.1.

Comment from Alexander Cameron
Time: May 21, 2011, 6:20 am

It’s an exemplar of what happens when power is unrestrained — whether it is union power in Saskatchewan or in teachers’ unions anywhere, or corporate power in NL or ON or Zambia — and how it can be curbed by the application of the three elements persistently lacking in the Canadian politicians we elect: a vision of the country as a whole, the intelligence to act nobly, and the courage to think beyond re-election.

Comment from robert
Time: May 21, 2011, 7:12 am

I am a big C conservative but I want worker rights, no workers from out side Canada at all. Less Multi nationals in my country a smaller miner cares more for the employee because he needs them and knows them on a personal level. One other thing if there is a worker shortage pay them more to get others to come that is how it works. Or leave the minerals in the ground for the future of out children. Do we care if that results in a shortage and we get more for the minerals, I think not. Bottom line, put Canadian workers first after all they are Canada.

Comment from Paul Tulloch
Time: May 21, 2011, 1:23 pm

I do not disagree with you one bit Travis, just thinking about something that in this case could have helped right now within this dumb ass financially bloated,in debt to the rich, environmental bankrupt, starving world GIGO system.

Trust me, I am all for such structural change, but to get there you have to start within the current system. (potentially) And one way to that goal is having a much stronger voice in the thousands of shop floors across the land. Building a movement.

Actually Travis that is something I have wanted to ask you. For example in this case, the USW was one of the strongest locals, in terms of embedded historically and culturally within these cities and towns. Yet, even with all that strength, they barely stood their ground and paid a huge price for keeping their collective abilities mostly safe for future generation.

During the post war period, the union organizing and strength although tempered by the new deal, was most likely at its height in terms of power- lets assume we had similar structures in place right now. Do you think it would have prevented VALE from deciding to act in such a destructive manner? I was thinking they were quite bold in attempting this union busting act, and somebody somewhere in Vale HQ made a very bad decision as nobody won this war.

Secondly, and somewhat related, what do you think about the notion that the labour movement was becoming too strong during the 70’s and that is what precipitated the downfall of the post war era.

I know there are many factor that contributed, but given the Neo con actions in the early 80’s, was it one of the key variables that precipitated the downfall? and the beginning of what hopefully we are witnessing an end to right now?

Comment from Dan Kucheran
Time: May 22, 2011, 10:14 am

Paul Tulloch (May 20th/11/10:34pm) wrote:”Nationalization—–> tough IR regulation——> lower regulation ——-> race to the bottom” Do you really want to entrust planet earth to global/multi-national corporations with their specific aim of profit/dividends/ greed BP/exxon/ former INCO environmental priorities/walwart concern for women’s equal pay/benefits just to name a few”occurences”?
..or entrust finance to the goldmann, etc executives and their toxic programmes?
Companies buy each other out( radically and otherwise),merge, pick up even worse leaders, collude with legal groups to write up even more convoluted “articles” become “too big to fail”, challenge in court, with ‘specifically ‘ appointed judges ( as in US supreme judgments re election funding), change names, break up into all sorts of radical sectors to handle the dirty stuff. I would side with governments/countries that have a wider/long term/ self-rectifying mechanism(s).
What we need in Canada is a horizontally & vertically integrated company to handle each of the four mineral and fibre resource groups – there is nothing wrong doing the right thing in the right way in our own way.

Comment from Paul Tulloch
Time: May 22, 2011, 1:19 pm

Sorry I think you mistook my comment- the arrows should not have been there. (or I presented my idea badly)

The four states should be

nationalization

tough IR- private ownership

weaker IR- private ownership

very weak IR- private ownership –

the race to the bottom comment refers to when we compete on wages and a business entity is privately owned it leads to the global race to the bottom.

Comment from Travis Fast
Time: May 23, 2011, 6:19 am

Paul wrote:

“Secondly, and somewhat related, what do you think about the notion that the labour movement was becoming too strong during the 70′s and that is what precipitated the downfall of the post war era.”

I think Robert Brenner has made a good case that union strength had very little if anything to do with the decline of the Golden Age. Let me briefly lay out his thesis and then suggest where the conclusions from it need to be tempered. What Brenner show is that the decline of profit rates pre-dates the union militancy of 70s. That militancy he reads as a response to the crisis of profitability. And he further makes the convincing point that what was driving the secular downturn in profits was increased competition between a successful post war reconstruction in Europe and Japan by the 60s. The result of which is that US manufactures and their Canadian branch plants lost their temporary absolute competitive advantage coming out WWII.

And although Brenner does not directly note this we could add that post WWII is when IR systems in NA were finally legitimised and institutionalised. In NA the first twenty years of the institutionalization of the IR regime occurred in the context of very favourable conditions in the competitive environment for the enterprises of NA workers.

and here is where we need to temper the conclusions drawn from Brenner. Although labour strength and the militancy of 70s did not cause the decline in profits the strength of unions was a bloc to the aggressive restructuring required to restore profitability. That is by the time it was apparent that the profit decline was secular not cyclical and then a couple of inflation shocks followed; union strength was a problem from the point of view of capital. Workers may not have caused the profit decline but their institutional strength meant they could throw up fierce resistance both at the point of production and in terms of public policy formation over who would shoulder the costs of restructuring.

Neoliberalism in this regard is not a mere technocratic derivation of public policy from neoclassical textbooks (although it was given a nice gloss by it) but rather is an ideology, policy paradigm and above all strategy of accumulation which has been by and large successful at creating an institutional environment where capital is the only actor capable of acting a) as a systemic actor and b) transnationally. And this was quite deliberate and the reason why strong labour and environmental standards were not and strong MFN and national treatment clauses were embedded in FT agreements. All led by the liberalization of investment. These are the key institutional elements of neo-liberalization and thus globalization 2.1.

To come back to your question. Strong unions would be a good thing the question however is what are the contextual conditions for a truly strong union movement? As you note:

“…the USW was one of the strongest locals, in terms of embedded historically and culturally within these cities and towns. Yet, even with all that strength, they barely stood their ground and paid a huge price for keeping their collective abilities mostly safe for future generation[s].”

By any definition the USW was (is) a strong union at the local level but without broader structural supports Vale, I would say, if not winning the day won the war. Hence, I do not have a problem with incremental reform but it is at the level at which these reforms are undertaken that matters.

Comment from Paul Tulloch
Time: May 24, 2011, 8:26 am

great comment Travis. I do agree very much with your analysis on both fronts, historical and in terms of the USW with Vale.

It is one of the labour issues that I think about alot, and the fight with VAle heightened it terms of the entire Canadian labour movement. A need for more solidarity within Canada and globally.

That in a context of making changes deep inside the foundations of the Canadian labour movement, in terms of both rebuilding a more unified movement, and also renewing its base through a deep rethinking of its locals and its roots within the national through the provincial right down to the local and the communities and neighbourhoods that they are embedded within.

With the growing assault on public sector unions, and continued multinational actions like Vale, there is a huge opportunity here for labour to go on the offensive. We could be seeing some precedent setting moves against labour with Harper which could open the door for the provinces to attack.

The new deal came about because of labour action, not inaction and defensive stances.

Global linkages go hand in hand with the strength of local linkages. So the labour movement is only as strong globally as it is locally and I do think the local level is in serious need of help. It was one of the surprises of the Sudbury strike for me- how divided the community became on this strike and seemingly unembedded the local had become in the community. It blew me away, of course potentially it was a media personification, but I do believe it was more divided than in past strikes under INCO.

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