A recent strike by the employees in Sandvik, a company in Arnprior Ontario, brought to mind another recently settled (bludgeoned) strike by postal workers against Canada Post. There are many schools of thought about the right to strike. On the one hand, the conservative view is that labour has become too strong when strikes threaten the very existence of the company being "victimized". On the other hand, the liberal point of view is that organized labour needs to be as effective today as it was when there were sweat shops. True, in large companies non organized labour can be exploited (See WalMart). However, in most large unorganized companies (the Japanese auto makers come to mind) labour is well organized in what some would call a captive union. In the US (unlike Canada) there are many "right to work" states where, even if a union is formed in a particular company that company can hire non union employees to work along side the unionized employees. In the US, notwithstanding successive Democrat administrations many public service unions (e.g. the Post Office) do not have the right to strike because they are designated as "essential services".
Unions are usually the bete noir when it comes to assigning blame for the wholesale exporting of North American jobs abroad. The argument goes that North American labour was too expensive and too demanding thereby driving jobs to China. What is probably true was that North American labour was inefficient in that one job in Canada or the US was worth, say, 10 jobs in China. If those 10 jobs cost (all burdens included) cost less than the one job in North America, it was expedient to export those jobs. However, over time, North American workers (mainly due to computers and other mechanization) have become more efficient and productive and foreign workers' efficiencies have remained about the same. Then there is the quality issue and the transportation issue. What the Chinese lacked in efficiency they made up for in shoddy work and poor manufacturing methods. Also, Chinese labour is becoming more expensive as more people move into the middle class (the Chinese are looking for "cheap" labour in Africa). Many foreign jobs are now being repatriated to North America. The unions had very little to do with this--one way or the other.
Add to this the internationalization of trade. Even small and middle sized companies are finding markets abroad. This sometimes means direct investment in building plants or sales organizations in foreign markets thereby taking away jobs for domestic workers. These decisions are not made on the basis of exporting jobs and more on the inability to reach distant markets from distant shores. While labour may be cheaper in foreign markets, the corresponding cost of doing business abroad may well offset cheaper labour. In other words it may not the labour factor that's driving the decision to export jobs.
One of the most perplexing issues that plague both labour and management is the issue of pensions. The ability of people to get pensions is a relatively recent phenomenon. In the early stages of industrialization of both Britain and the US wages and tenure were the main issues. Not pensions. The idea that a company that you had worked for for 40 years would have an obligation to pay you for another 10 years was preposterous. Contributory pensions started with government employees under liberal governments. Low wages were, in part, compensation for life pensions after retirement. Pensions for industrial concerns soon followed. The main reason for the bankruptcy of General Motors was the onerous "carry" on each produced automobile represented by pension payments. As people lived longer and interest rates came down pensions went from a "defined benefit", self funding obligation to an open ended obligation. In fact some General Motors pensioners have been receiving pensions longer than they worked at GM. Legislation in North America is also a contributing factor. It used to be that a company's pension obligation was funded annually against the pool of people in the pension plan. Later legislation allowed companies to defer annual funding and go on a "pay as you go" pension plan. In other words, the pension fund was raided so that younger contributors were paying for older recipients. This worked as long as the company continued in business. If the company went out of business (Nortel) pensioners were ordinary creditors who suffered the same fate as other creditors in the bankruptcy. Valuing and placing on the balance sheet actual pension obligations would wipe out the balance sheet for many large companies.
Company pension plans meant the worker did not have to save from today's salary to fund retirement. Social Security in the US and the CPP in Canada were supposed to be supplementary programs. However, as wages stagnated, in real terms, the ability of the worker to save became seriously curtailed. For most wage earners putting away $5,000 in a RRSP is laughable when it is measured against daily living expenses. The saving rate in Canada and the US (although the rate is coming up slightly) is appalling when it is measured against household debt (although the rate is abating slightly). Eventually, a great number of these underfunded people will find themselves supported by the state. As people live longer the problem gets worse.
In the US the tax system is biased in favour of savings. With Social Security and IRA and 401K plans there is a significant incentive to save. Also, small business can install defined benefit pension plans that are also heavily tax favoured. The interest deduction on mortgages is an incentive to buy against rent a home. Until recently a home was the greatest asset of value for most people. It will take some time for the current bulge of foreclosure to work its way through the system but I am confident that the housing market will recover making the home a significant repository of value.
Canada is far behind the US in providing a savings bias through tax favoured plans. RRSP deductions are too low. There is no equivalent or a 401K plan and defined benefit plans for small businesses are highly regulated and too tax poor to be helpful. A Senate committee heard testimony recently that suggested that the CPP fund be open to RRSP investors rather than have the money languish at CD rates. There has been no political interest in this kind of solution. Using the tax system to encourage savings is really a timing issue. The government will get the tax back when the plans mature.
So, to sum up, I do not believe that there is any bias in favour of organized labour. We feel the sting of strikes mostly when they are against public facilities like the Post Office or the local bus service. Most industrial strikes go largely unnoticed and do not greatly affect the average consumer. Solutions imposed by binding arbitration does not solve underlying problems. It's like Solomon who actually halves the baby to the consternation of the real mother. Even large corporations that do not have unions have some form of employee representation. Exceptional circumstances aside, small employers really do not have the upper hand since hiring a new employee is much more expensive than keeping an existing one. As to pensions, the issue is not limited or organized labour. It is the product, in part, of poor government savings programs that use the tax system to encourage people to save for old age.
And, as a total aside, a flat rate consumption tax would be an excellent incentive to save. But that's for another post.
Bernie.
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