After refusing a 50 per cent wage cut, combined with pension and other benefits concessions, on the first day of January, 465 Canadian Automotive Workers (CAW) Local 27 union members in London, Ontario were locked-out by U.S. multinational Caterpillar Inc. at its Electro-Motive Diesel, Inc. locomotive manufacturing plant.
Then on Feb. 3, while workers were locked out at the London facility, Progress Rail Services, the locomotive arm of Caterpillar Inc. (NYSE: CAT), announced plans to close the London plant, which it acquired in 2010, according to Caterpillar’s U.S. filings, as part of a $901-million deal for Electro-Motive Diesel, Inc. (EMD).
After winding-down Canadian operations, Caterpillar (manufacturer and retailer of construction and mining equipment, engines, and locomotives) indicated it would shift EMD work to its other North and South American plants. So, the work once performed in Canada would be transferred to EMD’s manufacturing facilities in America (Illinois and Indiana) or Mexico. And since EMD’s head office was already in LaGrange, Illinois, there was a tinge of practicality in the decision.
The initial shock of the announcement bred curiosity, and eventually centred attention on a Muncie, Indiana plant closed by Westinghouse more than a decade ago, where Progress Rail Services advertised wages in the low to mid-teens, for work once valued nearly twice as high in London.
Announced in 2010, the Muncie locomotive assembly operation officially opened in October 2011 thanks not only to Indiana’s incentives (similar to the $5 billion Caterpillar received from Canada in 2010), but also the state’s recently implemented right-to-work law, allowing for voluntary rather than compulsory union due payment, a policy which is expected to help Caterpillar avoid workforce unionization.
Ultimately, the Caterpillar strategy raised questions about issues such as globalization, trade, trade unions, compensation, capitalism and job creation.
Issues highlighted by Caterpillar’s actions:
Globalization is a polarizing issue that on one hand raises concerns about the social contract, sovereignty, exploitation, and pollution; On the other, issues of trade liberalization and economic integration.
Noam Chomsky once explained that globalization is about prioritizing rights — either for financial interests, or human beings.
Along those lines, multinationals are often accused of placing financial interests over humanity’s, an accusation Caterpillar can hardly deny based on what has been called unfair bargaining at its London plant.
Speaking to the UK Guardian, University of Western Ontario law professor Michael Lynk said Caterpillar’s unfair bargaining practices and ultimate Canadian defection was “the result of increased globalization.” Furthermore, in the company of other foreign organizations, Caterpillar had invested in Canada then proceeded to ‘recast the existing collective agreements.’
Is this market exploit one we should be comfortable with?
No. As the Bank of Canada’s Tiff Macklem said in a recent speech, “globalization, combined with technological change, is concentrating wealth in fewer hands within many countries.” This income inequality, he explains, is a fundamental growth barrier.
Trade — Free and Fair
The North American Free Trade Agreement (NAFTA) and other free trade agreements, (the Canadian government will be investigating one with China over the next few months, to “diversify our trade” and create Canadian jobs) gives authority to the World Trade Organization or other trade regulating bodies, rather than national or provincial governments, so how can citizens impact trade decisions which are outside their control?
The Communications Energy and Paperworkers Union of Canada (CEP) suggested federal and provincial governments seize Caterpillar’s London assets and “ensure that all community and worker obligations are fully met.” But this is a non-starter because when then Newfoundland and Labrador Premier Danny Williams confiscated AbitibiBowater’s Grand Falls-Windsor pulp and paper mill (which was reportedly closed in response to falling newspaper demand), the company filed a NAFTA petition claiming the seizure of its assets was illegal under the trade agreement.
Two years later, in August 2010 the federal government settled the dispute, paying AbitibiBowater $130 million Cdn, while threatening that any other province employing Williams’ tactics would be expected to pay the resulting costs.
Prohibitive tariffs have also been suggested; but NAFTA makes those unlikely, unless applied strategically, given that Caterpillar manufactures worldwide, including in India, China, Mexico, Germany, Japan, and Australia. Products manufactured in the United States and Mexico, according to NAFTA would have to be tariff-free; but not so elsewhere, providing there’s no such agreement. It is a short-term opportunity though, because FTAs are so lucrative for multinationals that more and more countries will join the parade in the name of economic expansion.
For example, in championing the U.S.-Colombia Free Trade Agreement last year, Caterpillar’s Chairman and CEO Doug Oberhelman said via press release that it will “bolster understanding and improve living standards of citizens in both countries.”
As proof, the company points to the fact that it exports more product than ever to Latin America, with 2010 Caterpillar exports to Mexico increasing five times over, and tripling to Chile. In total, the company says it exported goods in excess of $13 billion US, a figure bolstered by resource-rich Columbia’s thriving mining and petroleum industries, which ensure long term benefits to the U.S. corporation. However, Colombia’s gross income inequity and low minimum wage paints doubt all over the claim that Caterpillar is improving living standards there, especially as it effectively reduces them in London and elsewhere.
Ironically, while agreeing to free trade agreements costing five to 10 per cent in tariffs (normally used to assist local citizenry), these governments also finance infrastructure projects such as roads and sewer systems, all of which increase Caterpillar’s business opportunities, wealth, and dividend payouts.
Some citizens in both countries do benefit; but increasingly many don’t.
Such is life, you might say — Companies move money easily to suit business objectives, and sometimes as a result, globally disadvantaging workers; But if those are the fruits of free trade, then consider fair trade. It focuses on equity, human rights, and sustainability in international trade, particularly as it affects marginalized producers and employees.
If governments promoted fair trade, international organizations — and not just coffee producers and independent cafes — would concurrently foster a fairer world, and serve new and profitable markets.
Perhaps it is only because the market is not free why countries have to relinquish inordinate control over their domestic affairs in order to gain technical expertise and gainful employment.
Colombia, for example, according to information provided by its embassy in Canada, participates in FTAs to “ensure the transfer of new technologies,” which will enable it to modernize economically and commercially. And while that represents one of many reasons FTAs gain support, such agreements do not ensure the desired transfer.
Might FTAs not decline then if freer technology transfer — an FTT — were possible? At least outdated technology would not compel countries to sellout their weakest to fatten the strongest.
Weak free trade agreements that fail to provide for sanctioning misbehaving multinationals can be modified to do so. In particular, NAFTA’s supplementary accord, the North American Agreement on Labour Co-operation (NAALC), can be strengthened to effectively uphold the objectives of Canada’s Labour Code, which “deems the development of good industrial relations to be in the best interests of Canada in ensuring a just share of the fruits of progress to all.”
Without a union, some say those unemployed CAW workers might still be employed, albeit taking home up to 50 per cent less.
Be that as it may, such a significant reduction would undoubtedly affect a family’s wherewithal, forcing equivalent spending reductions in areas such as mortgage/rent, food, entertainment, and transportation costs. In the end, tax contributions decrease, while demand increases for tax-funded public services. These related costs trickle down and are felt by other local businesses, including banks and retailers, with current media estimates suggesting that nearly 2,000 jobs could be lost locally.
Understandably, judging from statements in its annual reports, Caterpillar prefers non-unionized environments. Protracted labour disputes in the 1990s between it and the United Automobile, Aerospace and Agricultural Workers of America (UAW) triggered many job losses and increased animosity and distrust.
Undaunted, Caterpillar vowed to pursue an “honest, business-like approach” in co-ordination with third-party employee representatives, including unions, such as the International Association of Machinists (IAM) and the larger UAW, which represented 27 per cent of hourly U.S. production employees at the end of last year, per company reports. That these two have managed to grow despite Caterpillar’s efforts to show that union representation is unnecessary, speaks for itself. It must also be disheartening to the company.
Indiana workers, however, in a state where the unemployment index is higher than their proposed pay, represent an opportunity for Caterpillar to thwart the unionization impulse. Probably those workers will intuit and heed the unfortunate message implicit in London’s plant closure: Unionize at your own risk! But such an unspoken threat they should not have to face.
The strongest unionization disincentive of all though is history — the memory of Muncie Indiana as a manufacturing boom town before plants closed and sought cheaper labour in places like Canada, where the low Canadian dollar coupled with FTAs appealed; Or in countries like China, which brim with the frequently non-unionized, low-wage workers that make mass production lucrative.
Naturally, lay employees will struggle to see that purported strength in numbers unions speak of, although it is visible in other terms if they look, for example, at Caterpillar’s 2011 profits ($4.9 billion US), along with CEO, Douglas Oberhelman’s compensation package ($1.1 million US).
Considering all this, unions have work to do. Ridiculed for losing touch with the general population, in addition to their own members, bargaining power is at stake, but also organized labour philosophy.
Colin McComb, former union representative come human resources professional, in the Edmonton Journal rebukes unions that have become “believers in the infallibility of their own political discourse.” His suggestions for survival include committing to binding arbitration rather than striking; displaying congeniality and firmness, not hostility; and observing political neutrality in order to respect the political diversity in membership and other supporters.
Coincidentally, what McComb suggests for unions could also work for corporations.
Additional suggestions for corporations include respecting domestic labour agreements and international labour standards; and operating fairly using honest dialogue, at home and abroad.
The value in treating employees well is not hard to see. In a Challenge article, professors Robert Buchele and Jens Christiansen state that “worker rights enhance productivity.” And ultimately “what’s good for workers is also good for the economy.” There is proof enough in Caterpillar’s annual report where in 2008 it trumpeted that throughout its global operations more than 600 employees contributed to more than 430 patents for the company.
To be fair, while Caterpillar inspired this discussion, General Electric, Honeywell, Sony, and others have been mentioned by the Canadian Association of Labour Lawyers (CALL) to the NAALC for using unfair labour practices, and in some cases what it called “anti-union conduct.”
Such tactics erode the goodwill companies bank on in the marketplace. This marketplace is a community, which when strengthened by conscientious corporations, also supply the workforce that in turn supplies the proverbial bottom line. Without this, corporate activity fuels social uprisings, like the occupy movement.
As the United Nations agency International Labour Organization (ILO) points out in its 2011 World of Work report, low wages do not ensure employment, nor enhance the well-being of people in either emerging or established nations, relegating to myth the dictum that “wage moderation leads to job creation.”
Constructing hope from tribulations:
Investor — What say you?
So what do the largest beneficiaries of Caterpillar’s actions think of its methods?
If you know them, or interact with them, ask. The annual shareholder’s meeting is one opportunity to do so. 2012’s is on June 13 at 8AM in San Antonio, Texas. Have your say also by e-mail, postal mail, or by phone. If you have comments for the company, it’s your choice.
Even unions can get involved and be heard. Unions as institutional shareholders (typically through pension funds, but with membership holding shares in the employing corporation) can rally support for corporate bylaws or other shareholder resolutions, as discussed in Michigan Law Review by Stewart J. Schwab and Randall S. Thomas. However, they point out that this is best done on an issue by issue basis.
Unions can also suggest qualified independent board candidates. The Teamsters union in 1997 succeeded with a resolution capping executive base salaries at $1M, and is thought to be one of the pioneers of union shareholder activism.
Others might find a voice through mutual fund holdings or other individual investments. According to Yahoo! Finance, Vanguard’s various mutual fund products are heavily invested in CAT, and Fidelity follows suit.
Direct CAT shareholders include the company’s directors and officers. Among them, the highest volume of outstanding CAT shares sit with independent director Peter A. Magowan, a former president and managing general partner with major league baseball’s San Francisco Giants.
CAT’s major institutional holders, as of year-end 2011, include Vanguard Group, State Farm Mutual Automobile Insurance, and the philanthropic Gates Foundation (Bill and Melinda’s).
The Gates Foundation, considering their altruistic raison d’être and vast resources, has clout, but absent a policy linking the foundation’s mission with its investments, any objection to CAT’s London move goes unheard.
“The foundation has no involvement in the management of the foundation trust,” the communications department said in an e-mail regarding the issue. This is because a team outside the foundation handles its assets, which is understandable from a governance perspective; however, it doesn’t preclude participation in principled investing, if policy were more important than profit — admittedly a complicated issue.
Of course individual investors are important too. An associate who works in the financial industry suggested that individual investors who don’t like the way Caterpillar operates should put their money where their mouth is — Withdraw. Then they can donate the gains to charity, or some other worthy cause. And although he seemed to find that alternative absurd, there is an ethical investment movement attempting to practice such beliefs.
He might be more inclined to agree with the alternative — acquiring additional Caterpillar (CAT) shares as an activist investor, intending to command attention at shareholder meetings, and or align with like-minded investors to encourage change, which is established practice.
Recover and restart abandoned factory
In Argentina beginning in the mid ’90s and peaking in 2001, workers suffering extreme poverty and high unemployment chose to fight for the right to work at factories abandoned by insolvent companies or those which folded and took business elsewhere.
Typified by horizontal rather than hierarchical structures, and heavily dependent on partnerships with other public and private institutions, many have survived if not thrived. In Spain, Zanello and Mondragon are known examples of what journalist Andres Caudin calls co-operativism, a voluntary member-owned rather than compulsory partnership with shared gains or benefits, as exemplified by your local credit union.
By pooling resources, these companies reclaimed a shuttered plant and returned unemployed workers to industry within their existing communities.
Capital and legal issues could stymie progress, but crowd-sourcing and other social media tools provide flexible fundraising tools complimenting others, including existing government-financed business start-up programs.
Elettra Technology Inc. (ETI) is one Canadian example.
Established in 1995, by former Westinghouse Motor Company executives, ETI emerged from a situation similar to EMD’s Londoners. As the Globe and Mail reported last year, Teco, which had bought Westinghouse, disbanded Hamilton’s unionized (CAW) operations, but retained the non-unionized Texan plant.
Galvanized by this, Carlo Di Pietro and Joe Aiello banked upon their decades of industry knowledge and opened their own business. Now the motor and generator manufacturer and parts supplier also produces specialty products such as electric vehicle (EV) prototype motors, and nuclear power plant motors from its Hamilton location.
This last option is not just a good news story. Taken with the ILO global employment trends report it becomes more pertinent. The report indicates this year will be challenging job-wise with “widespread decent work deficits.” It states that in the current labour force, one in three people are “either unemployed or living in poverty.” So, while the G20 countries are expected to focus on the global employment outlook, with job creation goals as part of their economic reforms, efforts by people like Di Pietro and Aiello help to shape a recovery.
Tagged: activist investing, Canadian Unions, Caterpillar Inc., CAW, co-operativism, Electro-Motive Diesel Inc., EMD, ethical investing, Fair trade, Free trade agreements, FTA, globalizaton, Labour unions, manufacturing, NAALC, NAFTA, Progress Rail Services, restarting abandoned factory, right-to-work law, trade