I awoke on a quiet night,
I never heard a sound
The marauders raided in the dark
And brought death to my hometown
They brought death to my hometown
They destroyed our families, factories
And they took our homes…
--Bruce Springsteen, Death to My Hometown
General Motors dropped a corporate bombshell on Oshawa, ON on Nov. 26, 2018, announcing that the automaker will shutter its production facility there at the end of 2019, throwing approximately 2,500 well paid auto workers onto the unemployment line.
Without a doubt, the economic ripple effect throughout the Oshawa community and beyond will be felt far and wide, with many families facing real hardship.
The automaker is shifting production away from traditional cars to electric and autonomous vehicles and will no longer produce the vehicles currently manufactured at the Oshawa plant. And GM has made it clear that it is unwilling to refit the Oshawa plant so that it could produce the vehicles of the future.
The rapid pace of technological change in the automotive sector is not the only reason that the autoworkers in Oshawa are losing their jobs and way of life. As General Motors embraces innovation, it is also relying on globalization to enhance its profitability. Indeed, the company is ramping up production in Mexico, a low wage jurisdiction.
“The GM decision to close the facility is completely against all the contribution and sacrifice of their workers have made,” Hassan Yussuff, President of the Canadian Labour Congress (CLC), said in a telephone interview. And the labour leader believes that the GM workers at Oshawa are perfectly capable of building the electric cars of the future.
“This is not a lack of skills or abilities on behalf of the workers,” Yussuf said, noting that Chrysler is about to start manufacturing a hybrid car in their Windsor facility.
“It truly is a slap in the face,” he said of the GM decision to pull out of Oshawa.
Hometown manufacturing
Oshawa is not the only Ontario community to be affected by a rapidly changing economy. For example, my hometown of Brockville, located in eastern Ontario city on the banks of the mighty St. Lawrence River between Toronto and Montreal, is suffering heavy losses as the forces of globalization and innovation decimate Ontario’s manufacturing sector.
Once a prosperous small working class city where manufacturing facilities provided thousands of good paying jobs, Brockville has suffered over the last two decades as globalization has taken hold.
For instance, Black & Decker launched a manufacturing facility in Brockville during the 1960s, and by the early 1980s, the plant employed more than 1,000 people. However, over the years, the company, which makes tools, workbenches and lawnmowers, gradually shifted Brockville’s manufacturing jobs to low-wage jurisdictions.
By 1998, Black & Decker ceased manufacturing operations in the city, transforming the Brockville facility into a mere distribution hub. And in 2011, the company announced that an additional 42 full time jobs would be slashed at the distribution centre, leaving just 20 employees in Brockville.
In the spring of 2017, the Brockville community took a huge hit when Procter & Gamble announced that it will shutter the city’s biggest industrial facility and employer. When the P&G plant, as it is commonly referred to in Brockville, closes in late 2020, 500 people will lose good paying jobs.
The plant’s closure will undoubtedly have a significant ripple effect throughout the Brockville area, hurting local businesses that currently service the plant and sell goods and services to P&G workers and their families. The financial hardship that the loss of the plant will have on the city of just 22,000 people should not be underestimated.
When Proctor & Gamble closes its Brockville, ON facility in 2020, 500 workers will lose their jobs.
The sad reality is that Brockville has lost most of its manufacturing facilities. Should workers in the hard hit community even entertain the hope that good paying jobs will come back to the city? “I think there is always hope. You can never give up hope,” Yussuff answered.
“The reality is that we can still create good employment for all kinds of people,” the labour leader said, offering a glimmer of hope to those who need it most.
“Technological advancement and change cannot be stopped. It’s going to continue, in my view. But I think the reality is that government has to consistently labour at the effort on how we get the public policy right to ensure that our citizens do not fall victim to the changes that are happening.”
According to the CLC president, public policy must play an important role in the economy if places like Brockville are to have manufacturing jobs. “I think for too often the governments have let the economy operate without any kind of levers on it.” And he contends that this lack of government engagement has contributed to “the devastation in places like Brockville” and elsewhere.
“I used to service Brockville as a union rep, at one time, so I know pretty well all the manufacturing jobs that used to located there,” Yussuff said. “At one time, they went to Mexico and at another time they went to other places around the globe,” he said of the migration of manufacturing jobs from Brockville to low jurisdictions outside of Canada.
“Most of those products are still being produced, except they are being produced someplace else,” he observed. “I think there is a huge resentment."
According to the Mowat Centre, an independent public policy think tank at the Munk School of Global Affairs and Public Policy at the University of Toronto, Ontario lost 300,000 manufacturing jobs between 2004 and 2014. And the process of de-industrialization isn’t just an Ontario phenomenon; it is playing out across the industrialized world.
“Manufacturing jobs have been disappearing in just about every developed economy for the past two decades,” states the think tank’s website. The combination of automation and the shifting of production to low wage countries are contributing to the rapid decline of manufacturing in the industrialized world.
Technology and special skills
“Technology means the application of scientific or other organized knowledge to practical tasks,” the late great economist, thinker, and diplomat John Kenneth Galbraith wrote in a pre-computer age essay entitled The Imperatives of Technology. “Its most important consequence, at least for the purposes of economics, is in forcing the division and subdivision of any such task into its component parts.”
Technological innovation drives change, but it is also driven by change. “In examining the intricate complex of economic change, technology, having an initiative of its own, is the logical point at which to break in,” writes Galbraith. “But technology not only causes change, it is a response to change.”
For example, Galbraith notes that technology forces specialization, but is itself, the result of specialization. And while technology requires organization, “it is also the result of organization.”
According to Galbraith, “technology requires specialized manpower.” And he explains in The Imperatives of Technology that “organized knowledge can be brought to bear, not surprisingly, only by those who possess it.”
In addition, Galbraith understood that the planning of an industrial process also requires “a comparatively high level of specialized talent.” And he writes that the ability “to foresee the future in all its dimensions and to design the appropriate action does not necessarily require high scientific qualification. However, he maintains that “it does require ability to organize and employ information or capacity to react intuitively to relevant experience.”
Technology disrupts the workforce
According to a detailed 2018 report from the World Bank, “technology is disrupting the demand for three types of skills in the workplace.” The report, entitled The Changing Nature of Work, notes that the first issue is “a rising demand for workers with non-routine cognitive and socio-behavioral skills.”
The second issue identified by the World Bank is the decline of “demand for routine job-specific skills.” And the thirdly, the report notes that “payoffs to combinations of different skill types appear to be increasing.” And these changes in the nature of work manifest themselves “through new jobs replacing old jobs,” as well as “through the changing skills profile of existing jobs.”
The World Bank points out that “machines replace workers most easily when it comes to routine tasks” that can be readily codified, such as payroll processing and bookkeeping. And when it comes to physical labour, robots are replacing humans in welding, assembling goods, and driving forklifts.
However, non-routine tasks are much more difficult to automate. For instance, tasks that involve analytical, interpersonal, or manual dexterity skills are still dominated by humans. “Designing, producing art, conducting research, managing teams, nursing, and cleaning have proven to be hard tasks to automate,” the World Bank reports.
In addition, the World Bank acknowledges that people in advanced economies “are anxious about the sweeping impact of technology on employment.” And the report states that many “hold a view that rising inequality, compounded by the advent of the gig economy—in which organizations contract with independent workers for short-term engagements—is encouraging a race to the bottom in working conditions.”
However, the World Bank optimistically concludes that, on balance, innovation tends to create new jobs and opportunities.
To take advantage of innovation, the World Bank recommends “investing in human capital,” making it a priority so as to “make the most of this evolving economic opportunity.”
To succeed in the new economy, workers will need specific skills. “Three types of skills are increasingly important in labour markets: advanced cognitive skills such as complex problem-solving, socio-behavioral skills such as teamwork, and skill combinations that are predictive of adaptability such as reasoning and self-efficacy.”
To help workers attain such skills, the World Bank says it will require “strong human capital foundations and lifelong learning.”
Impact on workers
What impact is technological innovation having on workers? The effects of technological innovation will be felt in a variety of industries as the pace of technological change accelerates, Yussuff replied. As jobs are automated, fewer people are going to be needed to do those jobs, he added.
“It is certainly going to displace a lot of people,” he said of innovation. “The bigger question is that we don’t know where people are going to land in terms of new jobs.”
Canadian Labour Congress President Hassan Yussuff warns that technological innovation will displace many workers in the new economy.
According to the CLC leader, there is “a big gap” in the skills possessed by displaced workers and the skills needed for them to get back into the rapidly changing job market. “So, the bigger question is what additional skills would they need to get back into the job market? And right now the EI (Employment Insurance) is not really serving us really well.”
Yusseff stated that less than 40% of Canadian workers are eligible to receive Employment Insurance benefits. “So, government is going to have to start thinking how do they provide training support for those who do lose their employment,” he said. Displaced workers will require not only retraining but also opportunities for decent new jobs, the labour leader added.
Two groups
According to Yussuff, the CLC finds that two distinct groups of workers are being displaced in the new economy. The first group is composed of higher skill workers in Alberta, Saskatchewan, New Brunswick, and Nova Scotia. They tend to labour in the natural resources sector.
For example, coal miners are losing jobs that pay $100,000 per year. “Nobody has any magic to tell people where they are going to get employed,” Yussuff said of the workers who are losing these high paying jobs.
“But these people who have fairly good skills and could basically adapt to the marketplace, especially if there were jobs available in the skills area in which they currently have training,” he stated.
However, if laid off workers are to find places in the innovation economy, they will have to adapt to the times. With improved training, said the CLC boss, unemployed workers could find new employment.
The displacement of workers by innovation and globalization is not a uniquely Canadian problem. Yussuff points out that other parts of the world are also struggling with this problem. “This is a challenge that we are going to face for some time,” he said. “There’s no magic here.”
Economist and consultant Ben Atkinson agrees that technological innovation “definitely creates winners and losers” in the Canadian economy. “The more high skilled workers tend to benefit most from the innovation,” said Atkinson, who holds a PhD. in economics from the University of Alberta and specializes in international economics, as well as in the area of industrial organization and competition policy.
Economist Ben Atkinson says that innovation is creating winners & losers.
“When we’re in a globalized economy, as the economy becomes more and more open, workers who are in lower skilled jobs or jobs that can be automated, they tend to lose out from it, because you can get robots to make cars, or you can go to Mexico where they have more of a comparative advantage for that. And so they are going to lose out,” said the Calgary-based economist and entrepreneur.
The workers who possess high skills “that developing countries can’t match” will be “the ones that are going to win from it, because they are going to grow,” stated Atkinson, who left a tenured teaching position at Mount Royal University to help launch Convergex BI Analytics and Consulting for Social Enterprise, where he is the vice president of research.
Comparative advantage
What is comparative advantage and what does it mean for the globalized economy? “Comparative advantage basically means that we focus on doing what we do the best, and let other people do the rest,” Atkinson replied.
“Imagine Canada completely closed off,” he continued. “Each province would have a specialization.” For example, Alberta would focus on oil, the East Coast on the fishery, British Columbia would concentrate on forestry, and Ontario would dominate manufacturing.
“But when you open up the economy to foreign competition, then that specialization and comparative advantage starts to dwindle, because they face competition from more efficient competitors. And that’s where the trouble has been happening in the Ontario manufacturing sector. They’re losing these jobs to foreign countries.”
Although some people propound protectionism as a way to shield the manufacturing sector from foreign competition, economists tend to dismiss that policy prescription and instead advocate making the transition to the new economy.
“And I believe that is what the federal government and the Ontario are now doing with GM,” said Atkinson of the senior levels of government’s response to the closure of the Oshawa plant. “Rather than trying to get another bailout, they’re saying we are going to help theses auto workers transition to somewhere we have more of a comparative advantage.”
More pain, fewer gains
In his new book, which analyzes the political phenomenon of political populism, former Canadian Prime Minister Stephen Harper observes that the world’s economy is undergoing a period of dramatic disruption and dislocation, creating winners and losers. And he asserts that “gains from new technology and globalization may be even less broad-based than in the past.”
The benefits of globalization and innovation tend to be felt in the developing world, “where poverty has fallen and living standards have jumped,” Harper writes in Right Here Right Now: Politics and Leadership in the Age of Disruption.
In his new book, former Canadian Prime Minister Stephen Harper examines the negative impact that globalization is having on working people.
Conversely, Harper says that in industrialized nations, the costs of disruption “have been born disproportionately by working class people,” causing millions of them “to question whether it is all worth it.”
Harper goes on to say that there’s “ample evidence that globalizing trade and productivity-enhancing innovation are producing a large number of so-called losers.” Citing a thirty year-low in the U.S. labour force participation rate, the former G7 leader acknowledges that working class people in the developed world have good reason to question the value of globalization and innovation. “The most dramatic effects have been in manufacturing, where total employment has fallen by one-third since 1980,” he writes.
Globalized trade and innovation “have been imposing real costs on people, their families, and their communities for decades,” states Harper, a free trader whose Conservative government concluded free trade agreements with 46 countries between 2006 and 2015.
“Trade is complicated,” Harper writes in Right Here, Right Now. And some trade deals are bad, because they hurt working people. And the former Conservative Party leader contends that “economic and political elites” have been blinded by free trade dogma or orthodoxy. And these elites incorrectly assume that all free trade is “always unrelentingly good.”
In the second chapter of his readable treatise, Harper poses three provocative yet central questions: “How did we get to the point where economic and political elites became more committed to trade principles than to trade outcomes? How did the geopolitics become unimportant? How did the actual impact on working-and middle-class people become irrelevant?”
Is Harper correct? Have elites—political leaders, business people, and economists--failed to adequately consider the impact of free trade agreements on working class and middle class workers. “I do believe that,” Atkinson said of Harper’s thesis.
“Because people who are free traders, particularly academics and experts, we tend to focus on the ideal and say this is where we should go. And a lot people don’t really consider the harm it causes. We just look at the net benefit overall in long run, and we don’t think about what is going to happen along the way, who is going to get hurt along the way.”
Atkinson also points to the political side of the equation. “If we are going to reach an economic ideal with free trade, politicians have to convince voters, particularly ones who are going to lose from it, it is for the best and make you happy in the end overall,” he said. “And that’s where we failed.”
According to the economist, too often academics and experts have “talked down” to workers about the costs and benefits of free trade.
When told of Harper’s thesis, Hassan Yussuff sounds surprised by the former prime minister’s observations about free trade. “Well, he’s correct, and I think he’s part of the problem,” the CLC leader responded. “And I’m glad he’s able to acknowledge not only the elites’ (failure) but his own failure as a former prime minister of the country.”
In addition, the labour leader said that the theory that simply lowering tariff barriers would generate more employment is not persuasive. He contends that Canada’s trade with the United States would have grown even without a free trade agreement. “It was inevitable,” he asserted, noting that bilateral trade with the U.S. increased before the original Canada-U.S. Free Trade Agreement had been negotiated.
“The reality is that once companies were able to access Mexico as place for production without tariffs to ship their products to Canada, a lot of manufacturing fled Canada and the U.S. and moved to Mexico,” he stated, noting Mexico’s low wages and weak environmental standards.
The loss of manufacturing jobs to Mexico generated resentment among workers, said Yussuff. And, like Harper, he said that during the 2016 U.S. presidential campaign, Donald Trump successfully ran on the theme of restoring manufacturing jobs lost to Mexico due to the North American Free Trade Agreement (NAFTA).
“After twenty something years, how do you address that trend?” Yussuff said of the flight of manufacturing jobs to Mexico. And he said it is uncertain how the new United States, Mexico, Canada Agreement (USMCA) will work in terms of the enforcement of labour provisions and auto wages.
A new hope
Can the de-industrialization of Ontario be reversed? “No, I don’t think it can be reversed,” Atkinson answered bluntly. “It can be slowed down, as it has been with the bailouts over the years, but as we’ve with GM recently in Oshawa, they are going to leave regardless.”
The former professor explained that “as long as we are becoming more globalized, the pressures for them to leave are going to rise. We need to adapt to the times and start to concentrate on areas where we have a comparative advantage.”
Atkinson doesn’t mince words. “We need to try to make the transition smoothly without giving people false hopes,” he said.
Conversely, the leader of the CLC holds out hope that Ontario’s manufacturing sector can be saved from the destructive forces of globalization and innovation.
When asked the same question about reversing de-industrialization, Hassan Yussuff replied: “I would simply say yes.” And he supports his assertion by citing the example of Germany, an industrialized country that maintains a “very high manufacturing base”--despite competition from other European Union countries and China.
“Germany has shown that it has the will and capacity to continue to see manufacturing not only add value to their economy but also to produce goods that are very high in value to export,” Yussuff said. “They have been able to do a much better job than most of us in trying to stem the tide of the complete loss of their manufacturing economy.”
Yussuff has got a point when it comes to Germany. The country remains a manufacturing and economic powerhouse.
“Only about 1.1% of the world population is German,” and yet nearly half of the mid-sized world market leaders hail from Germany, Hermann Simon writes in the Harvard Business Review. The article, published in May of 2017 and entitled Why Germany Still Has So Many Middle-Class Manufacturing Jobs, describes these German companies as “hidden champions” that help to make “German economic growth more inclusive.”
Simon, author of Confessions of the Pricing Man, calculates these firms have generated “1.5 million new jobs; have grown by 10% per year on average; and register five times as many patents per employee as large corporations.”
In addition, Simon concludes that the “hidden champions” have helped to maintain Germany’s manufacturing base. And he writes that almost 25% of Germany’s Gross Domestic Product (GDP) comes from manufacturing, which is approximately double the percentage of GDP derived from manufacturing in the United States, France, and the United Kingdom.
According to Simon, the vibrancy of Germany’s manufacturing sector has an “enormous” effect on employment. “Manufacturing creates jobs at home and at the time same allows companies, through exports, to participate in the growth of emerging countries,” he reports.
Tariffs
Why not take a page out of U.S. President Donald Trump’s playbook and erect tariff barriers to protect Ontario’s manufacturing jobs? “Tariff barriers end up hurting the people they are trying to protect,” replied Ben Atkinson. “And I think the evidence so far with Trump’s tariffs is that’s actually happening. There are manufacturers and blue collar workers who are being hurt by Trump’s tariffs.”
American President Donald Trump has adopted a protectionist trade policy, imposing stiff tariffs on imports, including Canadian steel.
In fact, said the economist, some American businesses are asking the Trump administration for certain tariff exemptions. “Because if you put on a tariff, it seems that you are punishing the other country by keeping out their imports,” explained Atkinson.
However, domestic consumers end up having to pay higher prices for imports. So, in effect, the tariff is “like a sales tax,” he said.
In addition, Atkinson said that American manufacturers are hurt by tariffs imposed on the inputs they use to make their products. “In the auto sector, for example, if you put a tariff on steel, and they have to import steel, then that’s going to raise their costs of doing business and lower profitability even more.”
In other words, Atkinson said that it may seem that tariffs are “helping domestic workers” but they are actually doing more harm than good.
How to help workers
What needs to be done to help workers hurt by globalization and innovation? Atkinson replied by saying that instead of “choosing winners and losers” when it comes to companies, the federal and Ontario governments “need to step in” and set up job retraining programs that give tax credits to businesses that hire new workers and train them, as well as giving tax credits to those companies that send current workers to acquire additional skills.
The purpose of government tax credits would be to refocus the job market on Ontario’s areas of comparative advantage. And Atkinson said that the market can help find where those comparative advantages are.
“But it’s got to be quick, because the longer people are unemployed, the less likely they are to find a job, because their skills have become outdated,” Atkinson said of the phenomenon known as hysteresis.
There are always going to be people who are hard workers but are not suited to work in the high tech economy. What is going to happen to them? Sadly, said Atkinson, older workers may not be able to retrain for a new job, “so maybe the government should help them get early retirement packages.”
What does the GM plan to close the Oshawa plant say about globalization? “It says that we are not going to keep the kind of jobs we had in the auto sector that we had decades ago,” replied Atkinson. “They are not going to come back. And we just need to accept that globalization is here; we can’t unscramble the egg.”
Going forward, if Ontario is going to build cars, it is important to build vehicles that are in demand, he continued. “One argument that has been out there is that the reason why the big three automakers (GM, Ford, Chrysler) have been doing so poorly is that they are not building the cars consumers want,” Atkinson said.
In addition, he explained that it is important to “focus more on the tech part of auto manufacturing” than the physical manufacturing of vehicles.
According to the president of the Canadian Labour Congress, there are a number of ways to help workers meet the challenges of the new economy. “One, I think, in regards to the skills levels that Canadians specifically have, we have a big gap in the country,” said Yussuff.
For example, he says literacy remains a problem among Canadian workers. “Not enough people have the basic skills to get retraining,” he asserted. “So we have got to figure out a better way how we are going to get basic skills to start with--if we are going to have life-long skills as they continue to adapt and deal with the changes that are happening in the job world.”
Second, “there needs to be stronger commitment in terms of income support for people when they are going through this (retraining),” Yussuff said. “For most people, income support from EI is not really adequate.” And he said that people need financial support as they retrain so that they can take care of their families, “so there is not a huge resentment, and, of course, anger that they are losing their job and don’t have anything to fall back on.”
Third, the CLC president acknowledged that it is not clear from where the new jobs will come. And he said that service the sector that is creating jobs tends to be low paying. “How do we ensure that those jobs become better paying jobs?” he asked rhetorically.
Conclusions
According to John Kenneth Galbraith, the purpose of the modern economy is not about just the expansion of production. “Increasingly, the purpose of the economy has become not the goods it produces but the jobs it provides,” he writes in the essay Economics and the Quality of Life.
Galbraith asserts that the quality of life will “suffer if individuals are not an end in themselves but an instrument of some purpose that is not their own.” And he points out that the development of a powerful economy will inevitably lead to the tendency to bend people and society to preoccupying economic goals. And he cautions against surrendering to the subordination of society to corporate goals.
“If we have economic goals in proper perspective, we will question the desirability of such subordination,” Galbraith writes in Economics and the Quality of Life.
Galbraith also argues that “escape form the commitment to economic” priority has an “emancipating” effect. “It enables us to consider a range of new tasks from the improvement of our cities to the cleaning up of roadside commerce, to the enlargement of cultural opportunity, to the redemption of mass communications form the hucksters, to the suppression of the influence of weapons makes on foreign policy,” he says of society’s liberation from strict economic priorities that tend not to value the public good.
How do we make the economy more inclusive for working people in the new economy? “That’s a good question,” Atkinson said, sounding a bit perplexed.
Do economists and policymakers have to think harder about what innovation and globalization mean for the stability for society, and how we make sure that large numbers of people are not left behind? “We do need to think about that a lot more,” he conceded.
“Since the crash of 2008, inequality has become extreme, and the people at the bottom of the ladder look up and can barely see the people above them, because they are so far away,” Atkinson stated. And he asserts that the social gap can lead working people to despair and to give up. And that would be very bad for the economy as a whole.
When globalization leads to more people losing out on prosperity and living at the bottom of the socio-economic ladder, it can lead to unrest. This leads to anti-globalization movements and extreme populist political parties, warned Atkinson.
“We need to figure out how to help them lessen the inequality, so they don’t feel so left behind,” the economist said of working people hurt by globalization and innovation.
The future of work
“The future of work is going to be something that continues to evolve,” said Hassan Yussuff. “No one has a crystal ball as what it’s going to look like. But I know one thing for sure, we have a significant role. We are a country with a good infrastructure. We’ve good social programs that can, of course, help Canadians do very well—health care, education.”
However, the CLC leader said that business, government, and labour must work together in a collaborative way to develop a public policy that addresses the skills shortage.
“We don’t have the capacity to train enough people to fill the skills needs of the country” despite having the best education system, he observed. Canada needs to get young people into the skilled trades and to retrain workers “to have the ability to get back on their feet and have a brighter future.”
Geoffrey P. Johnston was born and raised in the Brockville area. He is an independent Canadian journalist who specializes in international affairs, human rights, humanitarian issues, religious freedom, and political economy. Follow him on Twitter @GeoffyPJohnston