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Extracting Value, Not Just Resources - What Newfoundland & Labrador Can Teach the Rest of Canada About 21st Century Globalization

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  • George Lessard
    Facts from the Fringe by Jim Stanford, Canadian Auto Workers Extracting Value, Not Just Resources
    Message 1 of 1 , Jun 1, 2011
      Facts from the Fringe

      by Jim Stanford, Canadian Auto Workers

      Extracting Value, Not Just Resources



      Natural resources are increasingly central to Canada�s economic trajectory.
      challenge is to maximize the positive spin-offs from resource developments,
      while minimizing
      the economic and environmental costs. In that regard, imagine two extreme
      cases: one in which
      resource projects generate diversified and lasting benefits, and one in
      which they do not.

      Consider the negative case first. Suppose a resource is discovered in a
      remote northern
      location. Using helicopters, a foreign-owned company flies in necessary
      capital equipment and
      supplies, and even flies in labour. The resource is transported to global
      markets, also using
      helicopters. The profits are exported to the foreign owner, and much of the
      spending on tools,
      supplies, and specialized workers also leaves the country (since these are
      imported). Canada�s
      GDP is boosted for a while (until the resource runs out), but much of that
      wealth never �touches
      down� here.

      The opposite to this negative �helicopter� model is a strategy that
      maximizes Canadian
      participation in every phase of the development: exploration, investment,
      production, supply
      chain, and transportation. This doesn�t happen automatically. It takes
      deliberate measures by
      the developer (prodded and assisted by government) to maximize lasting
      benefits to Canadians.
      Government can invoke all sorts of policy tools in pursuit of this goal,
      including investment
      rules, tax and royalty rates, skills and training initiatives, conscious
      efforts to stimulate a
      domestic supply chain, and even labour relations policies.

      In this regard, a recent Newfoundland government inquiry sheds some
      fascinating light
      on the broader social and economic effects of foreign-owned resource
      developments. The
      commission, headed by John Roil, was established last October to investigate
      the long work
      stoppage at the Voisey�s Bay nickel processing operation in Labrador. That
      dispute between the
      Brazilian mining conglomerate Vale and the United Steelworkers was
      subsequently settled in
      January. But the issues at stake are much broader, as the inquiry recognized
      and addressed in its

      Newfoundland is a great laboratory for this inquiry. Voisey�s Bay comes
      close to the �helicopter� model of resource development. It is remote.
      Workers are flown in for
      weeks at a time (including replacement workers which Vale used during the
      strike). There and
      elsewhere in Canada, Vale has used its global bargaining power to drive down
      compensation and
      pensions. That boosts Vale�s profits, but undermines the share of resource
      wealth flowing
      through the Canadian economy.

      Indeed, Newfoundland�s entire economy epitomizes the risks of
      helicopter-style resource
      development. Thanks to oil and other resource industries, Newfoundland�s GDP
      per capita is
      high; along with Alberta and Saskatchewan, it is one of Canada�s three
      �have� provinces. Yet
      hourly wages are lower than the Canadian average. And personal incomes,
      shockingly, are still
      the second-lowest in the country �$5000 per person per year less than
      elsewhere in Canada.
      Workers� share of provincial GDP (captured in wages and benefits) is lower
      than any other
      province. Profits are sky-high: before the global financial crisis,
      corporate profits peaked at 37
      percent of GDP, a level unprecedented in Canadian history. But not much of
      that cream ever
      flows through the province; instead, it flows directly to head offices,
      whether in Calgary or Rio
      de Janeiro.

      So how can Newfoundland keep a bigger slice of the resource pie at home? The
      provincial government has been creative and aggressive in its efforts to do
      exactly that:
      negotiating hard with foreign developers to boost domestic content in new
      projects, investing in
      training, and spending expansively on social and economic infrastructure.
      Now the Roil report
      highlights another important avenue: labour relations.

      The power of a global mining giant to suppress compensation costs in any
      location is daunting. Moreover, the inquiry emphasized the risk that global
      employers may not
      reflect and respect Canadian labour relations values. The result is not just
      industrial conflict;
      more broadly, it reduces the share of resource wealth flowing through the
      society which actually
      owned and produced it. The commission recommended specific changes to labour
      policies, including new powers to solve protracted disputes through
      arbitration. It also called on
      government to use all its policy levers to level the collective bargaining
      field and push global
      firms toward more harmonious labour relations.

      The Roil report is a careful and thoughtful attempt to come to grips with
      challenges associated with Canada�s growing reliance on globalized resource
      sectors. It should
      be studied by policy-makers in all provinces.

      A version of this commentary was originally published in the Globe and Mail.


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