A fallacy big enough to drive a truck through
Basil "Buzz" Hargrove
Financial Post

Monday, June 06, 2005

The conventional wisdom states that when a company or an industry is in trouble, government should stay out of the picture. Attempts to save a company or a plant will only postpone the inevitable, or so the story goes.

I've never accepted that logic. Sometimes a company or facility is fundamentally unviable, and no rescue effort is possible. But there are many other instances where jobs and facilities can be saved, with a little time, a little flexibility, and a little outside help. When this is true, all stakeholders -- including government -- have a role to play.

There are several important examples in Canadian history of so-called "bailouts" that worked. The federal government helped save Chrysler in the early 1980s, and it subsequently became one of the most important industrial producers in the country. The Ontario government helped to successfully preserve the deHavilland aerospace plant in Toronto in the early 1990s.

In these and other cases, government participation was repaid many times over, in income taxes and other revenues paid by the surviving company, its employees, its suppliers, and its customers. These weren't "bailouts." They were a solid investment.

I recently participated in what is already another example of government's positive potential to play a healthy, important role in economic restructuring: a new investment at the International Truck and Engine plant in Chatham, Ont.

Three short years ago the days seemed numbered for this facility. The North American heavy truck industry was in a cyclical downturn. International had too much capacity, and was shifting production to Mexico. The company announced the closure of the Chatham plant. This would have been another painful blow for Canada's auto industry.

Thankfully, all stakeholders in the Chatham operation -- including the Canadian Auto Workers, the company, and the federal and provincial governments -- refused to lie down and watch this facility die, along with the thousands of jobs it supports.

The effort started with unprecedented negotiations between the CAW and the company, led by its energetic and visionary CEO, Dan Ustian. Although we had just experienced a bitter strike in Chatham (during which a CAW member, Don Milner, was run over and almost killed by a security van), we put our past differences aside and focused on saving the plant. We made far-reaching changes to enhance productivity and reduce costs, by tens of millions of dollars per year.

Then International came to the table with $270-million in investment, both in hard capital and in research and development. The investment includes two heavy truck research and development centres, which will study cleaner diesel engine technology and improved truck assembly efficiency. The City of Windsor and the University of Windsor are helping to fund these centres.

The federal and provincial governments also committed $65-million worth of investment and training support. All of this was enough to convince International to reverse its plant closure decision. Already the Chatham plant has called back all laid-off workers (a cyclical rebound in heavy truck sales also helped), and is planning to launch a new line of truck cabs. It's the company's first new heavy truck design in nearly 20 years -- and it will be produced in Canada, thanks to the willingness of all stakeholders to modernize and strengthen our partnership.

This investment is another important step forward for Canada's auto industry. By modernizing its production facilities in Canada, International solidifies its presence here -- for a decade or more. The R&D initiatives associated with the project will put us at the forefront in developing environmentally friendly diesel technologies and state-of-the-art manufacturing techniques.

Fiscally, the project is a great deal for government. Together, the federal and provincial governments collect $20-million a year just in direct income taxes from International's Canadian workforce -- let alone other revenues from spin-off jobs, consumer spending, and corporate taxes. Their investment in the Chatham plant will pay off for taxpayers in less than three years.

Throughout this whole process, I could not help imagining what would have happened if the federal and Ontario governments had stuck to the old conventional wisdom that governments should never get involved in economic rescue efforts. We would have one more major plant closure to deal with, thousands of job losses, a devastated community, and another blow to our most important export industry.

Fewer people ascribe these days to the "laissez-faire" view that government should relinquish all important economic decisions to the private sector. But Conservatives (in both Ottawa and Queen's Park) are still of the view that government has no business meddling in projects like this one. If they were running the show, there's no way the International Truck story would ever have had this happy ending.

So as our economy continues to grapple with globalization and technological change, governments have a responsibility to use every tool at their disposal -- from more creative use of employment insurance funds, to targeted investments, to research and training resources -- to give our companies and industries a fighting chance to survive and thrive.

Basil "Buzz" Hargrove is national president of the Canadian Auto Workers.
© National Post 2005