September 12, 2012 – Philip Cross writes a new op-ed in the Financial Post on the state of the relationship between Chrysler and the Canadian Auto Workers (CAW) union. An excerpt below:
But closing Chrysler’s plants might have a silver lining in the long run. It could be a seminal moment for Canada’s trade union movement, comparable to Ronald Reagan firing the air traffic controllers in 1981 or Margaret Thatcher staring down the miners’ union in 1985, both of which ushered in an era of labour peace and realism. Imagine the impact on the labour movement if the once-mighty Canadian Auto Workers union finally was held to account for its loopy economic theories and endless posturing.
The carmaker should have a Reagan moment and stare down the union
By Philip Cross, Financial Post, September 12, 2012
It seems fitting that just after Labour Day Chrysler’s head, Sergio Marchionne, speculated that, if negotiations with the Canadian Auto Workers union go badly, the company could shutter all its plants in Canada and move production to lower-cost jurisdictions in North America. Remember, this is a man from Ontario, who has to deal with unions in Italy, and bought Chrysler when he alone thought it could become a viable operation. So it is not like he came to Chrysler to bust unions.
I am of two minds in contemplating the impact of Canada’s second-largest auto producer closing its manufacturing operations. As an economist, I know this would hurt portions of the Canadian economy, particularly in southwestern Ontario. We had a test drive, so to speak, of this economic impact in May 2009, when Chrysler ceased all production during its bankruptcy. Manufacturing shipments in Ontario fell 5.4%, enough to lower monthly GDP by 0.3% and employment by 0.1%. So, the impact would be severe for parts of Ontario’s economy in the short run, but barely perceptible for the national economy.
But closing Chrysler’s plants might have a silver lining in the long run. It could be a seminal moment for Canada’s trade union movement, comparable to Ronald Reagan firing the air traffic controllers in 1981 or Margaret Thatcher staring down the miners’ union in 1985, both of which ushered in an era of labour peace and realism. Imagine the impact on the labour movement if the once-mighty Canadian Auto Workers union finally was held to account for its loopy economic theories and endless posturing.
The CAW, rather than protecting well-paying jobs for its members, recently has been a leading source of job destruction. Look at the body count of plants closed with CAW workforces. The Caterpillar plant in London, with the loss of 450 jobs to Indiana in January 2012, just 36 hours after the latter adopted “right to work” laws. Ford’s St. Thomas assembly plant and its 1,100 workers in September 2010. GM in June 2012 announced the closing of another Oshawa plant, costing 2,000 workers their jobs, with work transferred from $32-an-hour CAW labour to a plant in Tennessee where labour costs $14 an hour. Finally, the Baskin-Robbins plant in Peterborough turned out its lights just this summer (what is the CAW doing in an ice cream plant?).
The union extended its strike threat from one auto company to all three simultaneously because, as one outraged union leader said, “they insist on cutting costs.” Taxpayers would be outraged if, after going through bankruptcy and being bailed out by governments, corporate leaders did not insist on costs being competitive with those negotiated by the United Auto Workers in the U.S.
The problem with the CAW is that the conditions that led to its creation in 1984 no longer exist. The CAW broke from the UAW partly because the low dollar led firms to shift production to Canada and the union saw an opportunity to exploit this. However, free trade ended guaranteed levels of auto output in Canada, weakening the union monopoly on the supply of labour, which was further eroded by the growth on non-union operations at Toyota and Honda. Meanwhile, parity with the U.S. dollar is putting an end to the practice of extracting rents from a low exchange rate. The UAW accepted eight years of no wage increases, as well as a two-tier wage policy and a no-strike pledge that the CAW rejected. Is anyone outside of the CAW surprised firms want to shift production from Canada, the highest- cost jurisdiction for autos in the world, to the U.S.?
The head economist of the CAW in 2008 wrote a book on economics that could have been called A Short Guide to How to Lose Your Job. Read it, and you quickly understand how rank and file workers are being misled by their union. He says there is a “fundamental schism” between labour and management over wages and profits because “if one is higher, the other must be lower,” accompanied on the same page by a sketch of Karl Marx. So in this view, economic growth is a zero-sum game. Overall, he gives capitalism a grade of C-. And I give his command of economics an F, for not seeing the iceberg about to hit the Titanic that was the auto industry in 2008, and then refusing to learn the lessons about cost control from that crisis. He concludes that “economics is simply about how we work” (or maybe not if your company goes belly-up).
Compare this simple view of economics with the one in a recent paper by Canada’s William White (recently anointed a deity by Bloomberg Businessweek), which begins with a quote from Ludwig von Mises, one of the leading proponents of the Austrian school of economic analysis: “No very deep knowledge of economics is usually needed for grasping the immediate effects of a measure; but the task of economics is to foretell the remoter effects, and so to allow us to avoid such acts as attempts to remedy a present ill by sowing the seeds of a much greater ill for the future.” There is no better example of addressing a short-term problem but sowing the seeds for more bankruptcies and plant closures in the long run than yielding to the CAW wage demands. It may be better to bite this bullet now and wake up other unions to the new reality that has been facing Canadian business for several years, before we lose more manufacturing jobs.
Financial Post
