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Electro-Motive: Caterpillar’s corporate greed


February 7, 2012
by JOE TERRETT, PLANT EDITOR

Capitalism is a wonderful thing. You combine a few parts innovation, investment, brilliant executive leadership and labour with a free market that picks the winners, and the end result is a free society with a stable government, financed by successful companies and people who, for the most part, enjoy a comfortable, even high standard of living.

But the zeal for financial reward that drives free-market machinery eventually creates monsters that are consumed by greed. One such creature, bright yellow and named after a bug, recently stalked and devoured the livelihoods of hard-working, middle-class people in London, Ont., and the potential repercussions of its behaviour are troubling.

Caterpillar Inc., a US mega-corporation that makes heavy industrial equipment, locked out about 460 unionized workers at its Electro-Motive Canada unit, a manufacturer of locomotives purchased in 2010, after the Canadian Auto Workers (CAW) union rejected the company’s final – and outrageous – contract offer. The take-it-or-leave-it deal that came through Caterpillar’s Progressive Rail Services subsidiary amounted to halving the average hourly wage of workers – most of them skilled – from about $35 to $18, eliminating pensions and gutting other benefits. After about a month, the company shut down the plant.

What kind of catastrophic financial crisis could Caterpillar be facing that would require such draconian concessions from its workforce?

Apparently there wasn’t one. In fact, Caterpillar reported boffo financial returns – a 60% jump in profits for a net income of US$1.55 billion – days prior to closing the plant. And a pleased-as-punch CEO Doug Oberhelman noted that achieving the company’s financial targets could be attributed, in part, to the fine performance of Electro-Motive.

Yet the corporation accused the same unit of being inefficient, operating under antiquated work rules and having uncompetitive wage rates, which should be the beginning of a process that invites “bargaining in good faith.” It’s not good faith, however, to announce to people with valuable and much sought-after skills, such as welders and machinists, that overnight, their livelihoods will be slashed to the equivalent of a Costco warehouse employee who stacks bulk goods. Oh, and without the pension or remotely equivalent benefits.

We can assume that if a CEO like Oberhelman were to wake up one morning and discover his wages unilaterally cut in half, his pension eliminated and benefits gutted, he would somehow manage to scrape together the money from financial bonuses and stock options to super-size a Big Mac combo and put gasoline in the yacht. An Electro-Motive worker making about $70,000 a year, would not have such an easy time paying the mortgage and feeding the kids.

Of course, this obvious lack of fairness and reason is secondary to the sinister subtext. One Canadian analyst notes the $20 million to $30 million that might be saved by the concessions Caterpillar is demanding amount to an insignificant blip on the corporate spreadsheet. What is the motivation behind a contract offer that the CAW couldn’t possibly accept on behalf of its members?

The “offer”, which Caterpillar admits no other employer has ever dared table, wasn’t an offer at all, and it’s difficult not to conclude this was the plan when Electro-Motive was purchased 18 months ago.

The company is looking at locomotives, currently 4% of its sales, achieving five times the growth over the next decade. Now is the time to lay the foundation for super-sizing profits. In the 1980s, 80% of its business was unionized. Today it’s about 10%, so unionized workforces do not appear to be part of the plan, nor, it turns out, does the Canadian operation.

The CAW thinks Caterpillar’s end game is to divert the work from Canada to its Muncie, Ind. operation where wages are much lower and a compliant state government has implemented laws that make it harder for unions to organize.

Sadly, this scenario has been staged before. Caterpillar is just another giant US corporation, like US Steel, that slipped through an inadequate, outdated Investment Canada Act to plunder Canadian jobs and manufacturing capacity, strip branch plants of assets, jobs and intellectual property, then retreat to more pliable jurisdictions.

As for the Electro-Motive employees, they can look forward to nothing but sympathy from the federal and provincial levels of government since there are too few of them to inspire an intervention. The Harper people were mute on the plant’s fate prior to the closure, deflecting to the province, while the McGuinty government lamely offered to mediate. Now each blames the other, but both should be very concerned that Canada’s branch plant operations are so vulnerable to pillaging, and that as the manufacturing base erodes, so too does the tax-paying middle class.

Caterpillar’s rapacious behaviour is a reminder of why there are unions, and as the industrial past has so clearly demonstrated, workers who feel exploited will eventually seek the protection of collective bargaining, even in places like Muncie where folks may be satisfied with $18 an hour – for now. But it’s also a warning that the Investment Canada Act needs more bite with an aim to hold would-be corporate predators to account when they attempt to strip a Canadian-based business of its value and the economic benefits it generates.