“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