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The Progressive Economics Forum

“Globalization” and Unions

Last weekend I participated in a labour law conference at the University of Western Ontario, speaking on a panel which was asked to speak on the impact of trade and investment on labour rights. I weighed in somewhere between my co panelists Kevin Banks and Marley Weiss, arguing that there are very strong downward pressures on the power of unions arising from the “neo liberal” global economy, but also some countervailing factors.

A major focus of the conference was on the concerted attack on labour rights and the Wagner Act model in the US. There is absolutely no room for compacency in Canada, but still enough differences between us and the US to suggest that institutions and politics continue to play a role.

My speaking notes follow:

It is widely believed that “globalization” — increased integration of the global economy through ever closer trade and investment linkages — has weakened the bargaining power of labour relative to capital and thus been a significant factor in union decline — especially in the high wage advanced industrial countries.

 

That has been the view not just of labour and anti-globalization activists, but also of proponents of a liberalized global economy (e.g., Alan Greenspan) and has been widely endorsed by prominent labour economists (e.g., Richard Freeman).

 

The reality is that wages and benefits relative to productivity are a key factor in cost competitiveness in traded sectors of the economy (especially manufacturing), and that production and new investment will flow to low-cost regions and countries within integrated economic spaces.

 

There has been a very major spatial reallocation of global manufacturing production, especially over the last 10 – 20 years, as a huge share of global consumer goods production has shifted from the advanced industrial countries.

 

The developing country advantage is not just that wages (and taxes and social standards and regulations) are low, but also that skills and technological sophistication have grown rapidly. It is not very hard for transnational corporations to relocate increasingly sophisticated production operations requiring relatively skilled workers to relatively low cost countries, and developing countries have themselves developed significant industrial capacity.

 

Accordingly, there has been significant shift of manufacturing production in North America to Mexico post NAFTA (especially in auto) and to developing Asia, especially China, over the past two decades. The shift has moved very rapidly up the value-added ladder. More and more of the value chain has been off-shored by transnational corporations. And China and the “BRICS” (Brazil, Russia, India, China and South Africa) generally now have significant capacity in technologically sophisticated sectors (e.g., R&D capacity in consumer electronics, aerospace.)

 

The leverage for corporations provided by the threat of relocation of production and investment has been used — often in an extremely brutal and naked way — to extract major concessions from unionized workers and to resist unionization. For example, Electro Motive here in London demanded 50% wage cuts to match the non-union industrial wage level in Indiana and shut down when they did not get it.

 

These kinds of competitive pressures have spread to the resource sector with the rise of giant transnational mining companies with control of diversified resources, e.g., Vale Inco insisted on the end of defined benefit (DB) pension plans despite high profitability. Some services have also become vulnerable to offshore competition.

 

In the Canadian context, union decline has been especially pronounced in manufacturing in the wake of trade liberalization with the U.S. through the Free Trade Agreement (FTA), then with Mexico through North American Free Trade Agreement (NAFTA), and generally through the World Trade Organization (WTO).

 

Not only has the manufacturing share of employment fallen precipitously — from close to 20% to under 12% since the late 1980s — but also the rate of unionization within manufacturing has fallen precipitously — from 46% to 27%. This reflects the closure of union plants and expansion mainly in non-union plants.

 

Meanwhile, unionization in private services has been relatively stable over the same period — albeit at low levels. Union density in trade has fallen from 16% to 14%. Public sector union density in Canada has been stable at about 75%. Unionization in construction has been fairly stable at about 30%.

 

Increased competitive pressures on employers in traded sectors — first manufacturing, now extending to some services — have greatly increased employer hostility to unions. There are first round and second round union impacts on competitiveness — the firm’s own wage and benefit costs – and the wider cost structure within which they operate (e.g., regulation of infrastructure industries, the level of taxes). Traded sector corporate demands for competitive costs drive deregulation, privatization and tax cuts which undermine unions outside the traded sector itself (e.g., in transportation, utilities and public services).

 

The key point is that competitive pressures have increased employer bargaining power and hostility to unions, and this has fed through into demands for changes to labour law. Also, the reduced leverage of private sector unions has meant a major erosion of the union wage advantage and loss of benefits like defined benefit pension plans. This reduces the attraction of unions to non-union private sector workers and also fuels hostility to public sector unions. Unions are increasingly seen, not as a basic building block of a middle class society, but as defenders of a labour elite.

 

As in the U.S., but on a smaller scale, there has been an increasingly coordinated attack on basic trade union rights, led by Canadian Federation of Independent Business (CFIB) and some right-wing think tanks, which are calling for the end of compulsory union dues, major restrictions on union political activity, and even an end to collective bargaining in public services.

 

All that said, there are important countervailing forces which sustain union survival in a hostile environment.

 

First, trade and investment flows are very significantly shaped by exchange rates. Indeed, these can have much more influence on cost competitiveness than wage levels.

 

Between the late 1980s and the early 1990s, when the FTA with the U.S. was introduced and the Canadian dollar was very high relative to the U.S. dollar, Canada lost over 300,000, mainly unionized manufacturing jobs. But 500,000 new jobs were created between 1993 to 2004 when the Canadian dollar was low. The auto industry in Canada expanded at the expense of the U.S. But since 2004 we have lost those 500,000 jobs as the dollar climbed due to the resource boom. Meanwhile, manufacturing has contracted much more in the U.S. which has had an over valued currency over a much longer period of time.

 

Germany with its relatively high wages and still relatively strong unions is a major industrial powerhouse running large manufacturing trade surpluses in part because it benefits from the low euro.

 

Second, there is the possibility of labour/business/government alliances to engage in international competition based on high productivity and technological innovation based on private and public investments in research and development, sophisticated capital stock, and skills. The exemplars are Germany, Sweden, and Japan till relatively recently. These countries dominate global production of sophisticated capital goods and many high end services, and this provides a foothold for union strength.

 

The “high end” unionized model exists in pockets even in the U.S. and Canada, e.g. the aerospace industry, auto, machinery manufacturing — though unions have not spread into high tech in a significant way.

 

Some developing countries (e.g., Brazil, Korea, Argentina), have relatively strong unions in internationally successful traded good sectors.

 

Third, it has to be understood that liberalized trade and investment is only one aspect of the “neo-liberal” agenda, and that the relative strength of that agenda and especially its anti-union component varies between jurisdictions. Labour policy agenda is heavily shaped by institutions, traditions and political realities.

 

In much of Europe, there is high exposure to the forces of global capitalism and high levels of trade with developing countries, but there is still a regulated labour market. The norm is still collective bargaining in larger companies and sometimes most of the private sector —often via sectoral bargaining arrangements — plus significant workplace representation through works councils or similar institutions.

 

Not to be misunderstood — even in highly unionized European economies — there has been a clear decline in union bargaining power; wages have lagged productivity; and direct employment in traded goods sectors has fallen. But the key point is that the labour market institutional context is still very different from the U.S. and Canada.

 

The importance of institutional context is also clearly apparent in U.S./Canada differences.

 

Canada is even more exposed to international trade and investment flows than the U.S. (albeit with the advantage of a non mobile resource base). The economy has been relatively more specialized in auto, aerospace and resource-based manufacturing, and relatively less specialized in so-called knowledge-based industries which provide some insulation from global competition. There is very high (albeit receding) trade and investment economic integration with the U.S., and most of the rest of trade is with developing countries.

 

But union density has been much more resilient in Canada than in the U.S.: 33% in 2011 and 17.5% in the private sector vs. 12% and 7% in the U.S. There has been only a slow decline in the private sector since the late 1990s — from 21% to 17.5%; public sector density has been stable at high levels; and unions have expanded in the broader public sector (caring services, higher education, growing health care services).

 

And, relatedly, labour legislation has been and, despite erosion, remains much more supportive of unions.

 

Card check certification was rolled back significantly in the 1990s but still exists in the federal jurisdiction, Quebec and Manitoba.

 

The norm is some form of first contract arbitration which facilitates new organizing, and at least some restrictions on very overt employer anti union employer practices.

 

Right to work laws in the U.S., sense of optional payment of union dues/no closed shop provisions are few and far between, and the norm remains compulsory dues check off.

 

Strikes are now few and far between but they happen, and the fact that strikers can’t be permanently replaced gives unions some leverage.

 

Public sector unions have come under attack — but collective bargaining is still the norm despite frequent recourse to imposed settlements.

 

These norms are reflected in fact that the Supreme Court has recently expanded labour rights to a very limited degree.

 

Why is there such a marked Canada-US difference?

 

The key difference is the relative strength of centre/centre left parties supportive of, or neutral towards, labour, and — highly relatedly — the continued political influence of the labour movement. This is different from the U.S. where Republicans are overtly hostile to union, and even Democratic majorities have been unable to pass progressive legislation on core union rights issues.

 

Union density in Canada has been remarkably stable at high levels of 35% to 40% since the late 1990s in the most consistently labour friendly jurisdictions: Quebec, especially under the PQ; Newfoundland and Labrador; and Saskatchewan, Manitoba and BC due to the union-backed NDP being in government or a serious contender for power. (Note though that union density in BC has fallen precipitously from 36% to 32% over the last decade while the right held power, and that Saskatchewan now has a very anti-union government.) In Ontario, only the Conservatives — now in Opposition — have an overtly anti-union agenda, and arguably lost the last election due to union support for the Liberals as well as the NDP.

 

Provincial jurisdiction over labour law has been of critical importance — swings to the right have not been uniform across the country and have been reversed to some degree while coordination on the right around an overtly anti-union agenda has been fairly limited, until very recently. At the national level, the majority Conservative government is a clear threat, but the NDP is now the Opposition, and the Liberals have not been overtly hostile to the labour movement.

 

The political influence of labour reflects engagement in electoral politics and also a continuing tradition of social unionism — viewing unions as a voice for all workers. The labour movement has fought for expansion of public pensions, against privatization of public health care, for a public school system and accessible post-secondary education, for expanded child care services, and for income support programs like unemployment insurance (UI). The movement acts as a counterweight to right-wing ideology, and sustains a much larger and highly unionized non-market sector than in the U.S.

 

Not to be too complacent — slow erosion of private sector union density and leverage combined with the growing right wing campaign against basic union rights poses a very fundamental challenge. But it is not pre-ordained that unions will lose.

 

New union advances will, however, also require concerted action to entrench union rights within the institutions of global economic governance as a counter balance to the power of global capital. This will critically involve greatly expanding the role and power of the International Labour Organization (ILO) to ensure universal acceptance of core labour rights.

 

 

AJ:dc:cope225

File: 20302-R02

 

 

Comments

Comment from Paul Tulloch
Time: March 8, 2012, 10:54 am

Hi Andrew,

I agree with much in your posting here, except, I am not as optimistic with regard to union strength. Some of my comments lately reflect that, however I am undoubtedly being too pessimistic.

However you kind of fail to place enough weight on the ongoing austerity and planned austerity and many of the social roll backs being dictated in many countries and soon to appear in our own. Undoubtedly this will be a huge weakening of public sector unions and the entire fabric of unionism within the public sector could be torn asunder. i.e. why do we need unions if we have to give away everything -attitude is very deadly and a firestorm facing public sector unions.

One of the keys for the future of labour’s strength in Canada will be this grand upcoming austerity battle and the measures being planned and carried out on public sector. If public sector unions can prove to be effective in staving off at least some of the austerity, then I would move closer to your position of guarded optimism.

However to date, I have yet to see many victories by unions in Canada or globally when faced with these austerity measures. (potentially I should include left leaning governments as well)

This of course does also impact private sector unions as well, because if this global push towards austerity is successful, then we will undoubtedly be pushing more more national economies into a contracting state and edge closer toward a deeper global recession and private sector unions will increasingly be targeted and a focal point of right wing dystopic solutions to abate the decline.

Hence why I think there should be a whole lot more debate about some changes in strategy by labour. However, I am sure you have much more insight into these matters than me, but that is where I am at and undoubtedly pushing for a positive left outcome in the upcoming NDP leadership campaign.

As I agree, it is labour friendly governments that are one of the keys, as you say, but I still believe labour could do much better than they currently are, with the resources they have. I do think unions need to go through the much heralded self examination and renewal process.

Comment from Andrew Jackson
Time: March 8, 2012, 1:01 pm

Absolutely agree on the union renewal theme and the clear and present danger of austerity policies.

Comment from Purple Library Guy
Time: March 8, 2012, 5:20 pm

It seems to me that there is at least one basic point rarely explored. Mr. Jackson is clear that the underlying pressure comes from globalization and “free” trade. That pressure can to some extent be resisted by fighting hard and trying to maintain pro-union cultural elements.
But surely it would be more useful to get rid of that pressure by walking away from globalization and “free” trade. Globalization is not by and large a force of nature. Sure, there are technologies that are useful for globalizing agendas, but fundamentally it’s a matter of regulatory structure, treaties, taxation policies and so forth. We change the taxation policies, regulate differently, walk away from bad treaties and perhaps enter into new ones more like “ALBA” style trade than “NAFTA” style, and we change the pressures. We can walk out of NAFTA with six months notice just by saying we’re doing it.

At this point no doubt we’d want to be careful–just because we leave a NAFTA doesn’t mean we have to jack up tariffs across the board. We’ve lost so much of our own production, if we went for shock treatment we’d beggar ourselves. Off the top of my head, it seems to me we’d want to target a couple of sectors at a time, and to start off with work an industrial policy of import substitution in those targeted sectors, gradually broadening out and where appropriate working on extending into exports. It feels absurd to be saying Canada needs to engage in import substitution policies, but we do–we’re in a position very similar to the one third world countries faced back when they went for import substitution, and IMO it worked fairly well. This is precisely one reason why neoliberal policies were brought into Latin America etc., to shut down the local manufacturing in places like Argentina and put them back in their dependent position again. Export-oriented policies such as in Korea also built on a base of import substitution as I understand it. We need to start over again on that road to becoming an industrialized country, in the teeth of interests which control much in Canada including the Conservative party, who are intent on making us hewers of wood and pumpers of oil.

Comment from travis fast
Time: March 8, 2012, 6:08 pm

I dunno PLG, neoliberals were quite happy to see Brazil turn itself into an export platform. So maybe a little wine in your theoretical dependencia water. Better to work from a case by case study than make any blanket generalizations. I think, in the case of Argentina, internal class relations are more plausible story of what ails them. To be sure the cold war amplified those conflicts but they were indigenous conflicts being amplified nonetheless.

Speaking of class relations:

“Second, there is the possibility of labour/business/government alliances to engage in international competition based on high productivity and technological innovation based on private and public investments in research and development, sophisticated capital stock, and skills. The exemplars are Germany, Sweden, and Japan till relatively recently. These countries dominate global production of sophisticated capital goods and many high end services, and this provides a foothold for union strength.”

I have been told that Canadian capital goes grey in the face of such talk. So the question is how do you box them into seeing the logic of your position.

As an aside: Why does Switzerland make so much sand-paper?

Comment from Purple Library Guy
Time: March 9, 2012, 2:02 am

The onset of neoliberalism in Latin America was before the offshoring trend really got going. Sure, times have changed but that’s pretty recently, and many of the changes in places like Brazil really haven’t been with US consent. Bush and to a fair extent Obama have concentrated so hard on the Middle East and environs that they have had little attention to spare for stepping hard on Latin America. It is rapidly becoming too late, and thank goodness for that.

But up through the eighties and nineties, the role the US pushed for Latin America was certainly more oriented towards resources and cash-crop agriculture than manufacturing. Also of course offshoring is all about having the factory and the labour over there, but the ownership and profits over here. It doesn’t always work out that way in the end, but that’s the ideal. It certainly isn’t about factories in Argentina owned by Argentinians producing for a growing Argentinian middle class, with a reduced dependency on imported goods. It’s no co-incidence that in pre-meltdown Argentina the IMF advocated a currency peg to the dollar, which made imports cheap and, combined with freer trade, crushed the homegrown manufacturing sector.

One problem with Canadian capitalists, or at least CEOs, is most of ’em are running branch plants. One might argue that much Canadian industry has historically been an early form of US offshoring–only rather than coming here for the cheap labour, it came for the advantages of a strong welfare state, such as cheap health insurance. Canadian capital is practically the opposite of nationalist; the finance wants to be internationalist and rootless, while most of the rest is colonized.

Comment from Roy McPhail
Time: March 9, 2012, 1:39 pm

Excellent post and follow up comments. The last paragraph of the post earns a hear hear from this commenter. We need to see the global marketplace the same way global capital sees the global marketplace. The same support we provide within national markets between various union entities scaled up. Solidarity is not just a worn out slogan.

Comment from T Manderly
Time: March 10, 2012, 2:06 pm

Austerity and Greece are about to be used by the rightt as an excuse to try to roll back union agreements..

This is fake crisis….like the fake debt crisis New Zealand threat used in the 90s

The problem is austerity hurts the middle class and helps the only the rich….

Corporate profits are at record levels so, this is just a fake reason to try to gut middle class wages…

Comment from Nik Barry-Shaw
Time: March 14, 2012, 1:37 am

Kim Moody argues wrt the U.S. that outsourcing and offshoring is exaggerated as an explanation for the decline in manufacturing employment. Far more important has been that old capitalist process – relative surplus accumulation – which has allowed corporations to crank out more stuff with far less workers.

I don’t know if anyone has done the numbers for Canada to see if there is a similar thing going on here, but considering the one example of offshoring is of a Canadian company moving to Indiana (not India), I’m going to go with blaming capitalism and not “globalization.”

More generally: Is that really the strategy? Outcompete other wealthy countries in the world market to … do what exactly? Export unemployment and have our wages and working conditions decline somewhat more slowly?

Germany’s competitiveness is certainly in large part based on the squeeze that has been put on the working class:

http://media.lclark.edu/content/hart-landsberg/2012/02/15/germany-a-false-model/

Comment from Andrew Jackson
Time: March 15, 2012, 11:15 am

Nik,

Between 2000 and 2010, Canadian manufacturing production fell from $189 Billion to $158 Billion in constant dollar terms, and from 18.4% to 12.8% as a share of GDP. (GDP by Industry) That is deindustrialization. True, there has been stronger productivity growth in manufacturing, but that is far from the main factor. growth than other sector.

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