Manufacturing Gone Missing

Canada’s Economic Disappearing Act

Canadians can be forgiven for being a bit confused about the state of Canada's economy. Breathless news reports exclaim about the low unemployment rate, surging dollar and buoyant forecasts. Political leaders extol all the good things that flow from economic prosperity. Most mainstream economists talk of Canada having our "fundamentals" right. But in our neighbourhoods, something seems amiss. Across the country, working people seem to be treading water at best, or are even slipping below the surface in some regions.

And amidst all the talk of a white-hot Alberta tar sands boom and of our new status as a petro-powerhouse, we are assured by our leaders that the massive haemorrhage of auto sector and other manufacturing jobs is no big deal -- simply a natural shift in the Canadian economy.

If you are a working family in Canada, however, things just don't add up. How are we to make sense of all this? Let's start by looking at some numbers. In 2007, Canada's economy (as measured by the Gross Domestic Product, or GDP) grew 2.7 per cent, the highest increase among the G7 (the world's seven largest industrialized economies). In February 2008, Canada's unemployment rate was 5.8 per cent, a 33-year low according to Statistics Canada.

Yet, particular parts of the economy tell another story. The manufacturing sector lost ground in 2007, dropping 1.1 per cent in its share of the GDP. Since 2002, about 400,000 manufacturing jobs have been lost in Canada -- 15 per cent of all manufacturing jobs in the country. These losses have been felt most acutely in the industrial belts of Ontario and Quebec.

In contrast, the construction sector, driven heavily by the tar sands projects in Alberta, jumped 4.2 per cent. Other big winners were retail and wholesale trade, and the financial sector. Since 2002, service sector jobs have climbed by more than 400,000 -- a number not coincidentally similar to the loss in manufacturing.

Yet the numbers don't really tell us what is going on in the economy and why Canadian workers seem to be getting the short end of the stick.

Unfortunately, there is no simple explanation for what is happening in Canada's economy. Most union and progressive economists agree that one of the most immediate causes of the problems in manufacturing, at least recently, is the rise in the value of the Canadian dollar. "One key issue in the manufacturing crisis is the jump in the exchange rate of the Canadian dollar against the U.S. dollar," says Andrew Jackson, the Canadian Labour Congress' national director for social and economic policy. "It is fundamentally important, undermining Canadian manufacturing jobs, not just against the U.S. The rise in the exchange rate has shifted the attractiveness of outsourcing production jobs to southeast Asia."

And why the sudden increase in the dollar? A key culprit is the skyrocketing price for oil. But not in the way most people might think. "What's driving up the dollar is less the resource boom than the financial boom associated with it," says Jackson. "It is the recent takeovers of oil and gas companies and mining companies that have driven up the value of the dollar, more than the actual export of oil and coal."

Jim Stanford, senior economist with the Canadian Auto Workers, expands on this point: "High global prices for oil minerals lead to incredible profits for those companies, boosting their stock value and attracting foreign investors."

Jackson and Stanford state that the influx of foreign investment has made the loonie highly attractive to currency speculators, causing our buck to be over-valued. The result is devastating to manufacturing, since our products become less competitive when they cost more in export markets.

Toby Sanger, research director for the Canadian Union of Public Employees, takes the negative effect of foreign investment a step further. "We have a bloated financial sector that has starved the real, productive economy of investment. Lots of profits have been made, but little has been put back into production." This means, Sanger suggests, that our manufacturing sector has been under-capitalized and is consequently not innovative enough.

But that is only part of the picture. Jackson argues that much of the negative impact of NAFTA (the North American Free Trade Agreement) is only being felt now. "The low dollar bought us breathing space in terms of the economics of free trade," he says. Through the 1990s the loonie was undervalued, allowing companies to delay decisions about consolidating production in cheaper locations. With that advantage wiped away, the closures started coming en masse.

Robert Hickey, an industrial relations professor at Queen's University in Ontario, agrees. "This is, in part, consolidation due to NAFTA," he says. "With the recent rise of the dollar, U.S.-based manufacturers decided they don't really need a Canadian production capacity any more. It leads to our economy shifting."

Hickey is observing what he calls "employment turbulence" -- the simultaneous destruction and creation of employment. "While we are seeing lots of mass layoffs and permanent plant closures, we are also seeing the creation of jobs in other sectors." And what are those sectors? A large portion of these new jobs are in the so-called private services sector: retail sales, call centres, restaurants and hospitality.

Many mainstream economists claim this shift is both inevitable and desirable; that by moving from the "old" industrial jobs, we are building a new "knowledge economy." There's one problem, though, with this theory: the new jobs aren't replacing the income, security and benefits of the lost jobs.

Louis Erlichman, research director for the International Association of Machinists and Aerospace Workers, says that, after losing their manufacturing jobs, members of his union generally end up getting jobs that pay a lot less. "They were making $18 to $20 an hour; they end up making 10 to 12. Not many get equivalent jobs to the one they lost."

Erlichman also points out this shift is neither inevitable nor accidental. "It is because corporate interests have been dominant for the past 30 years," he says. "In the 1970s, the Business Council on National Issues -- a new body of corporate CEOs -- started saying enough is enough,'" regarding improvements for workers. "And then government policies shifted, starting with wage controls, restricted monetary policies. Then there was Free Trade, the attack on government deficits, tax reduction, and so on. Governments and corporations have used a range of tools with the single purpose of keeping wages and worker power down."

"You'd call it a conspiracy," says Erlichman, "except it has all been out in the open." Current governments are continuing that trend. Jackson says: "The dominant view in government is neo-liberal -- the idea that the job of government is to balance budgets and cut taxes, and that the market will create the economy." And the result, he says, has been bad news for workers.

Many people, when considering the plight of manufacturing workers, turn their eyes quickly westward to booming Alberta. In many ways, it serves as the perfect theatrical villain: the rich, swaggering, self-centred renegade. Skyward oil prices have meant good times in Alberta at the expense of the rest of the country -- or so the story goes. But, as it turns out, it is not that simple.

"Well over 50 per cent of Albertans say they are not personally benefitting from the oil boom," says Diana Gibson, research director for the Parkland Institute, a non-profit policy research institute based at the University of Alberta doing a lot of work on the impacts of the tar sands boom. "The boom has led to inflation rates much higher than the rest of Canada. If you didn't have a job before the boom, you have one now. But if you are on fixed income or had a job before, your income is not keeping pace. There have been no big wage increases for workers, but we have seen significant increases in the cost of living, including double digit rent hikes."

"At the height of the boom," Gibson says, "we are seeing teachers being laid off because the government wouldn't provide school boards with cost of living increases. There has been no investment in the social economy." Or the rest of the economy, Gibson points out. "Alberta's economy is less diversified today than it was 20 years ago."

Alberta's decisions are felt across the country. "Low taxes in Alberta drive down taxes in other provinces," says Gibson. "The no-brakes approach to the oil sands is pinching everyone, including manufacturing in Alberta."

Jim Stanford agrees. "The laissez-faire approach of the Alberta government -- the near-zero royalties and taxes and the hands-off approach to managing the pace of oil development -- have accelerated the distorting, unproductive, gold-rush development boom." And, says Stanford, this has lead to "negative outcomes elsewhere in Canada."

"Many Albertans are saying we need a national discussion about the oil sands because it affects everyone," says Gibson. "We should be looking at a carbon tax and other measures to ensure all Canadians benefit from this resource."

In short, Alberta may be contributing to the crisis, but it is not the oil boom, per se, that is the culprit. As in the rest of Canada, it is a combination of corporate profit-taking and government inaction that is having negative consequences.

It is easy to put down on paper "400,000 manufacturing jobs lost," without having to think about what it means. But for the unions and workers' organizations dealing with layoffs everyday, the number has, in fact, stark meaning.

For Steve Banks, the southwest Ontario area coordinator for the United Steelworkers, the meaning couldn't be clearer. It has not been an easy few years in the region where he works. "In the past three years, just in the London area, the Steelworkers have lost 3,500 members through closures and downsizing," he says. "The City of London has lost 10,000 direct manufacturing jobs."

Banks tells of the story of Wallaceburg, Ontario -- a town of 11,000. "Our union represented four plants around Wallaceburg. There were about 500-600 workers in those plants. Today all are closed down, every job lost, plus hundreds more as spin-offs."

When plants directly employing five per cent of an area's population close down, the effects are devastating and immediate, Banks says. "If you go to Wallaceburg today, you see lots of empty plants with for-sale signs. The effect is that a husband loses his job in one plant and the wife in another. If one spouse loses a job, that is hard. If both lose their jobs, it is devastating."

"Where do they go to find work? What transferable skills do they have? Sure, there is retraining. You can retrain someone to perform any function, but there has to be a job available. In towns like Wallaceburg, there are no jobs. So what use is retraining?"

The crisis is not just hitting small, one-industry towns. Sonia Singh, an organizer with the Workers' Action Centre in Toronto, has been tracking the effects of job losses in Toronto.

"Where you see sectors in decline, jobs lost, you see the new jobs that spring up are precarious jobs -- short term, part-time, temporary, no benefits, no security," she says. "We've witnessed a huge growth in employment agencies and other kinds of jobs such as cleaning, sales, telemarketing -- work where the structure is precarious."

"People are working low-wage jobs, being forced to juggle two or three jobs just to get by," she says. "This affects their family and their ability to get involved in community life, and trying to make a difference in their world."

The consequences for workers are real and serious, Singh says. She tells the story of one worker assisted by the centre. "One man found himself waiting two years for unpaid wages from a restaurant where he worked. He lost his housing. It forced him into a financial crisis he still hasn't recovered from two years later. These are the basic things the government is not covering.

When people can't count on a basic protection such as their wages, it has a huge spinoff into their lives, both financially and with their health. The strain of never having job security has an incredible impact on people's health."

And the health of entire communities is affected when plants shut down and workers lose their jobs -- a fact lost in the statistics. Workers lose their spending power, and towns lose their tax base. "Local governments are heavily dependent on property taxes," says CUPE's Toby Sanger.

"When a plant closes, it squeezes the local government for revenue, forcing them to look at privatization, P3s (public-private partnerships) and so on. In small towns, if a plant shuts down, the local government has a shortfall in revenue during a time of dire need," says Sanger. "The consequence is a paring down of public services at the local level, which compounds the pain of
disappearing jobs."

The large industrial unions, plus the Ontario Federation of Labour, the Quebec Federation of Labour and the CLC, have been mobilizing to make a political issue out of the crisis in manufacturing. They have, collectively, been trying to urge governments to take action to stop the bleeding in the industry -- so far without success. "A 30-year low in unemployment makes getting political traction of any kind for a manufacturing jobs campaign much harder," says Robert Hickey. "Does any one hear it in Ottawa?"

It is easy for politicians to ignore the crisis in manufacturing when, on the surface, the rest of the economy seems to be going so well. But the problems run deeper.

"We have been trying to make this an issue politically with our own members," says IAM's Erlichman. "It is hitting them directly -- they are losing their jobs. Yet we are having trouble getting them aroused. We tried in successive elections. We explicitly set up regional meetings with the parties to debate the loss of manufacturing jobs, and got limited turnout." When asked why he thinks it is so hard to mobilize people, he says: "Somehow they see it as just the way of the world. They say to themselves, 'It must be our fault somehow.'"

Hickey thinks part of the problem is that the unions affected are not cooperating as much as they could. "There is a general agreement on objectives: retain good jobs, promote a strong manufacturing industry. But there is shockingly little coordination and cooperation between the various elements. Part of it is legitimate strategic differences, but part of it is the acrimonious relations of unions in Ontario."

There is widespread agreement on what the goals need to be. There is a strong consensus on the policies Canada needs to reverse the decline in manufacturing. A lower Canadian dollar is a must, everyone agrees. There is also agreement that, to gain ground against the job losses, a series of other manoeuvres is necessary -- manoeuvres that will have more impact than the actual dollar value itself.

Stanford looks at a broad basket of policies. "There is a role for monetary policy, but the real cause is not monetary policy. It is a structural issue. As a country we should deliberately mess up the profits of the resource sector to slow down development. Tax the super-profits and this will reduce the appeal of those companies in the eyes of foreign investors. We need to more stringently regulate foreign takeovers. Use the taxes raised as part of a broad industrial strategy, especially in high technology, high-skill areas."

The idea of slowing down the tar sands boom gets agreement from the Parkland Institute's Gibson. "Absolutely we need to slow down the oil sands," she says. "We are experiencing a construction-phase boom. When it is done, two out of three jobs will disappear. We need to slow it down to lengthen this phase and to buy us time to have a national debate about whether we should be developing this resource at all. And to look at investing in sustainable energy sources."

Unions are also calling for some short-term bailout money from government to stem the bleeding. "Any support cash to industry can't be just thrown at the corporations," says Erlichman. "We argue it has to be tied to Canadian-based investment, Canadian-based employment. It needs to be a very focussed kind of support." However, up until now, union campaigns for these policies have mostly fallen on deaf ears among those in power.

Hickey feels that, logically, if the unions did better at working together, they would start having a bigger impact. "First, show the same level of solidarity as employers show," he says. "Employers are much better organized at shaping the economic environment. Unions need to have the same level of cohesion if we are to have an impact."

"Second, experiments are needed. Unions need new ways of increasing their strength: more international cooperation, go after the anti-union employers with new tactics, be sure to organize in areas of economic growth."

The CLC's Jackson sees an even more important new approach for unions. "We need to organize around a green industrial strategy. It has the potential to link the interests of manufacturing workers to broader public policy, such as climate change and quality of life."

Clearly, underneath the rosy economic figures lies a very troubling picture for workers in Canada. Structural shifts, created by years of public policy and increasingly aggressive corporations, are leading Canada down a road to a hollowed-out economy, with big profits and benefits for a chosen few and more insecurity, instability and precariousness for most workers.

The good news is that Canada's labour movement is both doing what it can today to minimize the damage, and also starting to think ahead about the future economy. A Canada focussed on high-tech green industries would be a Canada with a vibrant, and sustainable, manufacturing sector which would also mean a continuation of good jobs for hundreds of thousands of Canadian workers. Plus, it might strengthen ties between labour and other social movements as we work together to make this vision a reality. We all can hope. And roll up our sleeves to help make it happen.

Jason Foster is the Alberta Federation of Labour's Director of Policy Analysis.