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21st Century Globalization: What Newfoundland and Labrador Can Teach the Rest of Canada

May 20, 2011

8-minute read

A shorter version of this analysis appears at the Globe and Mail’s Economy Lab. See article and comments here.

Last fall Premier Danny Williams wondered what could drive anyone to let hundreds of millions of dollars slip through their fingers. Last week he got his answer.

The Roil report on the 18-month strike at Voisey’s Bay nickel mine in northern Labrador is an eye-opening case study in 21st century globalization, and has the potential to be a game-changer.

It is the final output of an industrial inquiry commission appointed by now-ex-Premier Williams in October 2010.

At that time about 240 United Steelworkers had been on strike against global mining giant Vale since August 2009, labour relations had become toxic, and Innu and Inuit communities finally poised to make economic gains had become tragically split down the middle.

The commissioners reported that Vale ultimately lost an estimated $500 million to $1 billion in operating revenues; the workers lost over $9 million in wages over 2009 and 2010; the union spent about $4 million in legal fees, staff supports and strike pay; and Newfoundland and Labrador’s GDP took at 1.4% hit in 2009, 2.6% in 2010.

(Notwithstanding this, Newfoundland and Labrador’s economy grew faster than any other province in 2010.)

Less than three months before the inquiry was launched, Vale had settled a 12-month strike in Ontario, with 3,400 Steelworkers in Sudbury and Port Colborne, one of the longest strikes in Canadian mining history at that time.

Mere days before the inquiry started, the federal government gave Vale a $1 billion U.S. loan, one of Export Development Corporation’s largest.  Less than a month after that windfall, Vale announced that it was laying off 500 workers at the Thompson, Manitoba refinery and smelter, which has been in continuous operation since the 1950s under Inco.

Vale bought Inco in late-2006 for $19.2 billion U.S., making it the world’s biggest extractor of iron ore and the second largest mining company in the world.  Despite the protracted strikes in Canada, Vale reported net profit of $17.3 billion in 2010, more than three times the previous year. Revenue was $46.5 billion in 2010, nearly double the 2009 revenue.

Vale’s revenue base is bigger than the economy of Newfoundland and Labrador (GDP of about $30 billion in 2010), an increasingly common phenomenon as multinationals get bigger, less reliant on any particular location in their network, and production moves to more remote locations.

That’s certainly the case in Canada. Our trajectory of economic growth courses along the veins of resource extraction. Our most resource-rich locations are increasingly found on lands traditionally held by Aboriginal peoples or adjacent to them. From an east-west axis of development that hugs the 49th parallel, Canada’s new growth pole is the north, an emerging economy like so many others in the global supply chain.

In the case of Voisey’s Bay, deals were cut with the Innu and the Inuit peoples who could lay claim to these lands, pitting workers against one another, neighbours against neighbours.

Is this the new face of globalization?

What the Roil report makes clear is that the potential for prosperity is huge; but how it is distributed and sustained is hotly contested.

Newfoundland and Labrador’s economy survived decades of austerity, and even though they are now a “have” province, their traditions are based on helping each other out, through thick and thin. They might not all get along, but they know they have to live with one another, for better or worse.

Tellingly, Newfoundland and Labrador have standing tri-partite councils of business, government and labour. They are the only jurisdiction in Canada –  perhaps North America –  to address common problems in this ongoing way. These “Strategic Partnerships” deal with issues as diverse as labour markets, employment relations, innovation, population, and transportation and communications infrastructure.  They provide a forum for timely intelligence-sharing, nip conflict in the bud where possible, and hasten the adoption of workable solutions.  This may be a clue as to why the government of Newfoundland and Labrador was more inclined to ask why things went so wrong than other jurisdictions faced with the same dynamics.

Now it is the best of times, for Newfoundland and Labrador, and Vale, alike. But so much momentum can easily run terribly amok in short order. Premier Williams’ decision, when he was Premier, to appoint an inquiry into the Vale issue sheds light on what could have been done to put it right, early and quickly.

The answer boils down to accountability and, ultimately, plain old talking. Turns out, you can’t run a successful business for long without talking with the people that make your business work for you. It also depends on making sure we don’t foul our own nest.   Turns out, we’re interdependent, with one another and the land itself.

It may not always be obvious.  Resource extraction used to happen in company towns.  Now economic development does not necessarily mean community development.

Voisey’s Bay is a typical example of what is happening. It has no road access.  It’s a fly-in, fly-out operation, courtesy of the employer, with workers coming in for two-week stints, working 12-hour shifts.

This is not unusual in recent mining and oil and gas developments. It’s hard to make this microcosm visible to the rest of the world.  There are a few scattered communities nearby, with large concentrations of Innu and Inuit populations starved for economic opportunity.

After Vale resumed production during the strike, these communities were turned to for replacement workers (scab labour), creating friction in the community and, in some cases, within families.  Vale also contracted out a service that recruited workers from all points of the compass, raising concerns that it would import their labour force model from Brazil, where workers cycle through in two-year stints. It’s a common feature of maquiladora in many Central American nations and other economies that rely on migrant labour.  Unlike Canada, long-term employment is not a typical feature of Vale’s mining operations, even though they started out as a state-owned company.

Not initially, but within months of the takeover from Inco, Vale’s CEO Roger Agnelli made clear that Canadian operations would be brought “in line” with corporate practice elsewhere. As the March 2010 Globe and Mail feature Nickelled and Damned summarized “the essence was that Vale wants to have the same style of operation that it has in the rest of the world.” Their production network is mostly in developing nations.  Given the concessions that Vale was seeking across the country, Steelworkers perceived themselves as the bleeding edge of a systemic attack on workers’ expectations.

Vale’s behaviour also springs from a “home country” culture that has few regulations, weak enforcement of those regulations and negligible labour rights.  The concept of stakeholders does not exist in its strategic decision-making. What Vale chooses to do, Vale does. There is no need for discussion.

When problems arise, win-win solutions are hard to find: there is no sense of common purpose or shared future. That culture clashes with ours. Canada’s institutions, regulations and laws were built on a different foundation — designed to balance the rights and responsibilities of the powerful few with the vulnerable majority.

Vale and others will say “That was then; this is now.” Partly culture, partly location, the Roil report reads as if Vale doesn’t think anyone is watching, or should.

Not so fast, says Steve Ashton, MLA for Thompson, Manitoba and Cabinet Minister in the NDP Manitoba government.   “Vale can’t escape scrutiny. Look at what they do in Thompson.  This will be looked at around the world. A Zambian mining president during the strike in Sudbury said if this is the way they treat people in the first world we don’t want Vale in Zambia, in the third world.”

The lesson learned, from this story and countless others in our wired world: no matter how remote, the whole world could be watching.

Buried in the appendix of this report is a jewel of a submission by Professor Gregor Murray that methodically lays all this out and shows how globalization is changing, and changing us along the way.  Clear-eyed and matter-of-fact, it lays out the options for how to deal with these realities in Newfoundland and Labrador and elsewhere in Canada.

It is a gripping read, underscoring how globalization is not a one-size-fits-all proposition, and that we have plenty of choices when it comes to dealing with huge multinationals, despite growing imbalances in bargaining power.

Murray makes the distinction between soft power and hard power that governments have, should they choose to exercise it.

Soft power includes ways to strengthen and foster institutions that make it easier for parties to talk.  Conciliation and mediation mechanisms have fallen into less use, but can be powerful tools to hasten information exchange and forestall stalemates. Constituting tri-partite sector councils is another means to such an end.

Hard power includes mechanisms that compel the parties to talk. These can include mandated labour-management committees wherever there is a collective agreement. It can include compulsory reporting requirements, to governments at the local, provincial or national level, already in place in numerous jursidictions. It can involve laws that compel any multinational corporation operating in more than one jurisdiction to hold discussions with all the parties involved on a regular basis, as has been the practice in the European Union since 1994. It can mean banning replacement workers, to restore the balance of power between workers and management, such as is the case in Quebec and B.C..

Murray’s submission lists an impressive array of instruments that are in use by multinational corporations already, in Canada and around the world.  All of them create an environment of better, more timely information exchange. That works to counter the growing imbalance in bargaining power between employers and employees. On the other hand, the most sure way of accelerating this trend is by shutting down information, dialogue, exchange.  We want our governments and our citizens to act responsibly, and be accountable to one another. We can expect it of our corporate citizens as well. Other nations do.

The Roil report, and Murray’s submission within it, shows how multi-national corporations are gaining in size and power, here in Canada and around the world. But it also shows how we are far from powerless to deal with them.  MNCs operate differently in different nations, depending on the norms, rules and expectations of the host nation.  Pause for a moment on the term “host”.  These companies are our guests.  They are invited in, under certain terms and conditions.  We have what the rest of the world wants.  What do we want out of the bargain?

It takes guts to seize and use one’s power, and wisdom to use that power judiciously.

It remains to be seen what the current Premier of Newfoundland and Labrador will do with the Roil report, and if any other political leaders will seize on the importance of its recommendations.

But the truth is that the commission’s report is less a cautionary tale than a story of possibility.

Canada will see much more foreign investment in the months and years to come.  We have a broad range of tools at all levels of government to manage that investment to serve the public interest, from the role of the federal government and how the Foreign Investment Act is used to serve the public interest to the role of the provincial governments and how they shape their labour, economic development and environmental ministries.

Our goal should be to export the first world economy and conditions, not import a third world standard.

The Vale example is a wake up call, and Newfoundland and Labrador is the first jurisdiction to really wake up and smell the coffee.

From economic mess to economic frontier, Newfoundland and Labrador has a thing or two to teach us about managing a future that is at once promising and threatening.  The Roil report is a beacon from the Rock lighting the way, showing what way danger lies and the route to safe harbor.

We can let globalization shape us, or we can shape globalization.  Our choice.  Our future. The whole world is watching.

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